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Optimal Demands & Equilibrium Price in Asset Markets

Explore equilibrium pricing models and optimal demands in asset markets based on private signals. Learn how to solve for coefficients and achieve market clearing.

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Optimal Demands & Equilibrium Price in Asset Markets

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  1. (λ+ω) investorsreceive information about Asset 1 (λ-ω) investorsreceive information about Asset 2 (λ-ω) investorsreceive information about Asset 1 (λ+ω) investorsreceive information about Asset 2 λ=0.5, ω=0 Home Country Foreign Country Asset 2 Asset 1 1 0

  2. (λ+ω) investorsreceive information about Asset 1 (λ-ω) investorsreceive information about Asset 2 (λ-ω) investorsreceive information about Asset 1 (λ+ω) investorsreceive information about Asset 2 λ=0.5, ω=0.05 Home Country Foreign Country Asset 2 Asset 1 1 0

  3. (λ+ω) investorsreceive information about Asset 1 (λ-ω) investorsreceive information about Asset 2 (λ-ω) investorsreceive information about Asset 1 (λ+ω) investorsreceive information about Asset 2 λ=0.5, ω=0.10 Home Country Foreign Country Asset 2 Asset 1 1 0

  4. (λ+ω) investorsreceive information about Asset 1 (λ-ω) investorsreceive information about Asset 2 (λ-ω) investorsreceive information about Asset 1 (λ+ω) investorsreceive information about Asset 2 λ=0.5, ω=0.15 Home Country Foreign Country Asset 2 Asset 1 1 0

  5. (λ+ω) investorsreceive information about Asset 1 (λ-ω) investorsreceive information about Asset 2 (λ-ω) investorsreceive information about Asset 1 (λ+ω) investorsreceive information about Asset 2 λ=0.5, ω=0.20 Home Country Foreign Country Asset 2 Asset 1 1 0

  6. (λ+ω) investorsreceive information about Asset 1 (λ-ω) investorsreceive information about Asset 2 (λ-ω) investorsreceive information about Asset 1 (λ+ω) investorsreceive information about Asset 2 λ=0.5, ω=0.25 Home Country Foreign Country Asset 2 Asset 1 1 0

  7. (λ+ω) investorsreceive information about Asset 1 (λ-ω) investorsreceive information about Asset 2 (λ-ω) investorsreceive information about Asset 1 (λ+ω) investorsreceive information about Asset 2 λ=0.5, ω=0.25 Home Country Foreign Country Asset 2 Asset 1 1 0 GrossmanStiglitz (1980), Hellwig (1980), Admati (1985): postulateequilibriumprice as a linearfunction of the averagesignals and the aggregate stock supply, find the optimal demands and impose market clearing to solve for the undetermined coefficients.

  8. Privatesignals Normalizedprice signal

  9. GrossmanStiglitz (1980), Hellwig (1980), Admati (1985): postulateequilibriumprice as a linearfunction of the averagesignals and the aggregate stock supply, find the optimal demands and impose market clearing to solve for the undetermined coefficients.

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