Effects of financial innovations on market volatility when beliefs are heterogeneous

Journal of Economic Dynamics and Control

Volumn 22, Issue 4, 1998, Pages 597-626

  Zapatero, Fernando ^a  

^a INSTITUTO TECNOLÓGICO AUTÓNOMO DE MÉXICO   (Mexico)

Author keywords

Financial innovation; Heterogeneous beliefs; Volatility

Indexed keywords

EID: 0032044523     PISSN: 01651889     EISSN: None     Source Type: Journal    
DOI: 10.1016/s0165-1889(97)00076-6     Document Type: Article

References (42)

1. Abel, A., 1990. Asset prices under heterogeneous beliefs, working paper. Wharton School.
2. Allen, F., Gale, D., 1988. Optimal security design. Review of Financial Studies 1, 229-263.
3. Allen, F. Gale, D., 1991. Arbitrage, short sales, and financial innovation. Econometrica 59, 1041-1068.
4. Allen, F., Gale, D., 1994. Financial Innovation and Risk Sharing. MIT Press. Cambridge.
5. Rack, K., 1992. Insider trading in continuous time, Review of Financial Studies 5, 257-275.
6. Basak, S., 1996. A model of dynamic equilibrium asset pricing with extraneous risk. Working paper. Wharton School, University of Pennsylvania.
7. Citanna, A., 1996. Financial innovation and volatility. Working paper, Carnegie-Mellon University.
8. Constantinides, G., Duffie, D., 1996. Asset pricing with heterogeneous consumers. Journal of Political Economy 104, 219-240.
9. Cox, J., Huang, C., 1989. Optimal consumption and portfolio policies when asset prices follow a diffusion process. Journal of Economic Theory 38, 33-83.
10. Cox, J., Ingersoll, J., Ross, S., 1985. An intertemporal general equilibrium model of assel prices. Econometrica 53, 363-384.
11. Detemple, J., 1986. Asset pricing in a production economy with incomplete information. Journal of Finance 41, 383-392.
12. Detemple, J., 1991. Further results on asset pricing with incomplete information. Journal of Economic Dynamics and Control 15, 425-453.
13. Detemple, J., Murthy, S., 1994. Intertemporal asset pricing with heterogeneous beliefs. Journal of Economic Theory 62, 294-320.
14. Dothan, M., Feldman, D., 1986. Equilibrium interest rates and multiperiod bonds in a partially observable economy. Journal of Finance 41, 369-382.
15. Duffie, D., Jackson, M., 1989. Optimal innovation of futures contracts. Review of Financial Studies 2, 275-296.
16. Duffie, D., Rahi, R., 1995. Financial market innovation and security design: an introduction. Journal of Economic Theory 65, 1-43.
17. Duffie, D., Zame, W., 1990. The consumption-based capital asset pricing model. Econometrica 57, 1279-1297.
18. Dumas, B., 1989. Two-person dynamic equilibrium in the capital market. Review of Financial Studies 2, 157-188.
19. Geneakoplos, J., Polemarchakis, H., 1986. Existence, regularity, and constrained suboptimality of competitive allocations when the asset market is incomplete. In: Heller, W., Starr, R., Starret, D., (Eds), Uncertainty, Information and Communication Essays in Honor of Kenneth J. Arrow, vol. III. Cambridge University Press, Cambridge.
20. Gennotte, G, 1986. Optimal portfolio choice under incomplete information. Journal of Finance 41, 733-749.
21. Girsanov, I., 1960. On transforming a certain class of stochastic processes by absolutely continuous substitution of measures. Theory of Probability and its Applications 5, 285-301
22. Harris, M., Raviv, A., 1993. Differences of opinion make a horse race. Review of Financial Studies 3, 473-506.
23. Harrison, J.M., Kreps, D., 1979. Martingales and arbitrage in multiperiod securities markets. Journal of Economic Theory 20, 381-408.
24. Hart, O., 1975. On the optimality of equilibrium when the market structure is incomplete. Journal of Economic Theory 11, 418-443.
25. He, H., Pearson, N., 1991. Consumption and portfolio policies with incomplete markets and short-sale constraints: the infinite-dimensional case. Journal of Economic Theory 54, 259-304.
26. He, H., Wang, J., 1993. Differential information and dynamic behavior of stock trading volume. Review of Financial Studies 8, 919-972
27. Huang, C., 1987. An intertemporal general equilibrium asset pricing model: The case of diffusion information. Econometrica 55, 117-142.
28. Karatzas, I., Lehoczky, J., Shreve, S., 1987. Optimal portfolio and consumption decisions for a 'small investor' on a finite horizon. SIAM Journal of Control and Optimization 25, 1557-1586.
29. Karatzas, I. Lehoczky, J., Shreve, S., Xu, G., 1991. Martingale and duality methods for utility maximization in an incomplete market. SIAM Journal of Control and Optimization 29, 702-730.
30. Karatzas, I., Xue, X., 1991. A note on utility maximization under partial observations. Mathematical Finance 1, 57-70.
31. Kyte, A., 1985. Continuous auctions and insider trading. Econometrica 53, 1315-1335.
32. Liptser, R., Shiryavev, A., 1977. Statistics of Random Processes. Springer, New York.
33. Lucas, R., 1978. Asset Prices in an Exchange Economy. Econometrica 46, 1429-1445.
34. Mehra, R., Prescott, E., 1985. The equity premium: a puzzle. Journal of Monetary Economics 15, 145-161.
35. Merton, R., 1971. Optimum consumption and portfolio rules in a continuous time model. Journal of Economic Theory 3, 373-413.
36. Merton, R., 1975. An asymptotic theory of growth under uncertainty. Review of Economic Studies 42, 375-393.
37. Merton, R., 1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance 42, 483-510.
38. Miller, M., 1991. Financial Innovations and Market Volatility. Basil Blackwell, Cambridge.
39. Ocone, D., Karatzas, I., 1991. A generalized clark representation formula, with application to optimal portfolios. Stochastics and Stochastics Reports 34, 187-220.
40. Varian, H., 1985. Divergence of opinion in complete markets: a note. Journal of Finance 40, 309-317.
41. Wang, J., 1993. A model of intertemporal asset prices under asymmetric information. Review of Economic Studies 60, 249-282
42. Wang, J., 1994. A model of competitive stock trading volume. Journal of Political Economy 102, 127-168.