Risky Arbitage, Asset Prices, and Externalities
Working Paper No. 05-W24
Cuong Le Van, Frank H. Page, and Myrna H. Wooders
ABSTRACT [article]
We introduce a no-risky-arbitrage price (NRAP) condition for asset market models allowing both unbounded short sales and externalities such as trading volume. We then demonstrate that the NRAP condition is sufficient for the existence of competitive equilibrium in the presence of externalities. Moreover, we show that if all risky arbitrages are utility increasing, then the NRAP condition characterizes competitive equilibrium in the presence of externalities.
Keywords and Phrases: Risky arbitrage, competitive equilibria, viable asset prices
JEL Classification Numbers: C62, D50