Optimists and pessimists in (in)complete markets

  • We study the effects of market incompleteness on speculation, investor survival, and asset pricing moments, when investors disagree about the likelihood of jumps and have recursive preferences. We consider two models. In a model with jumps in aggregate consumption, incompleteness barely matters, since the consumption claim resembles an insurance product against jump risk and effectively reproduces approximate spanning. In a long-run risk model with jumps in the long-run growth rate, market incompleteness affects speculation, and investor survival. Jump and diffusive risks are more balanced regarding their importance and, therefore, the consumption claim cannot reproduce approximate spanning.

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Author:Nicole BrangerORCiDGND, Patrick Konermann, Christian Schlag
URN:urn:nbn:de:hebis:30:3-504383
DOI:https://doi.org/10.2139/ssrn.2356502
Parent Title (English):SAFE working paper series ; No. 252
Series (Serial Number):SAFE working paper series (252)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2019
Year of first Publication:2019
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2019/06/27
Tag:Market (in)completeness; heterogeneous beliefs; jumps in aggregate consumption; jumps in the longrun growth rate; recursive preferences
Issue:June 6, 2019
Page Number:55
HeBIS-PPN:451459873
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Institute for Law and Finance (ILF)
Wissenschaftliche Zentren und koordinierte Programme / Frankfurt MathFinance Institute (FMFI)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht