Multiple Equilibria in Noisy Rational Expectations Economies

Pálvölgyi, Dömötör; Venter, Gyuri

doi:10.2139/ssrn.2524105

Cited by 16 publications

(12 citation statements)

References 46 publications

(53 reference statements)

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“…Our setup differs from that of Grossman and Stiglitz () by a change of variables, which leads to some superficial differences in the results. Palvolgyi and Venter () derive interesting nonlinear equilibria in the Grossman and Stiglitz () model.…”

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confidence: 99%

Efficiently Inefficient Markets for Assets and Asset Management

Gârleanu¹,

Pedersen

2018

The Journal of Finance

149

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We consider a model where investors can invest directly or search for an asset manager, information about assets is costly, and managers charge an endogenous fee. The efficiency of asset prices is linked to the efficiency of the asset management market: if investors can find managers more easily, more money is allocated to active management, fees are lower, and asset prices are more efficient. Informed managers outperform after fees, uninformed managers underperform, while the average manager's performance depends on the number of “noise allocators.” Small investors should remain uninformed, but large and sophisticated investors benefit from searching for informed active managers since their search cost is low relative to capital. Hence, managers with larger and more sophisticated investors are expected to outperform.

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confidence: 99%

Efficiently Inefficient Markets for Assets and Asset Management

Gârleanu¹,

Pedersen

2018

The Journal of Finance

149

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“…This proof follows the arguments of Pálvölgyi and Venter [34]. By contradiction, suppose that (on a set of positive measure) there are two vectors…”

Section: Resultsmentioning

confidence: 62%

Is inflation default? The role of information in debt crises

Bassetto¹,

Galli²

2017

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We consider a two-period Bayesian trading game where in each period informed agents decide whether to buy an asset ("government debt") after observing an idiosyncratic signal about the prospects of default. While second-period buyers only need to forecast default, first-period buyers pass the asset to the new agents in the secondary market, and thus need to form beliefs about the price that will prevail at that stage. We provide conditions such that coarser information in the hands of second-period agents makes the price of debt more resilient to bad shocks not only in the last period, but in the first one as well. We use this model to study the consequences of issuing debt denominated in domestic vs. foreign currency: we interpret the former as subject to inflation risk and the latter as subject to default risk, with inflation driven by the information of a less-sophisticated group of agents endowed with less precise information, and default by the information of sophisticated bond traders. Our results can be used to account for the behavior of debt prices across countries following the 2008 financial crisis, and also provide a theory of "original sin." * For helpful comments and suggestions, we are indebted to

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“…We next prove that q 2 isΣ 2 -measurable. This proof follows the arguments of Pálvölgyi and Venter [36]. By contradiction, suppose that (on a set of positive measure) there are two vectors (s C , C…”

Section: Resultsmentioning

confidence: 63%

Is Inflation Default? The Role of Information in Debt Crises

Bassetto

Galli

2019

American Economic Review

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We study the information sensitivity of government debt denominated in domestic versus foreign currency: the former is subject to inflation risk and the latter to default. Default only affects sophisticated bond traders, whereas inflation concerns a larger and less informed group. Within a two-period Bayesian trading game, differential information manifests itself in the secondary market, and we display conditions under which debt prices are more resilient to bad news even in the primary market, where only sophisticated players operate. Our results can explain debt prices across countries following the 2008 financial crisis, and also provide a theory of “original sin.” (JEL D84, F34, H63)

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Multiple Equilibria in Noisy Rational Expectations Economies

Cited by 16 publications

References 46 publications

Efficiently Inefficient Markets for Assets and Asset Management

Efficiently Inefficient Markets for Assets and Asset Management

Is inflation default? The role of information in debt crises

Is Inflation Default? The Role of Information in Debt Crises

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