| Status | 進行中Working |
| Achieve Pareto Equilibrium with Continuous Speculations | |
Qin, Z.
| |
| Abstract | In this paper, we show that differences in confidence give rise to the need of speculations in quadratic derivatives, which resemble smooth straddles. A single round trade yields fully Pareto efficient risk sharing and side-betting allocations. Interestingly, without the quadratic derivative, endogenized continuous speculations in a stock and a riskless bond based on a series of public imperfect signals also enable investors to implement the Pareto efficient consumption plan. The investors form their Pareto optimal trading strategies as if they intend to dynamically endogenously replicate the value of a dividend derivative. A policy implications is that gradual release of information by firms through, for example, earnings forecasts and quarterly earnings announcements will benefit investors with heterogeneous beliefs. Withholding information might hurt investors. |
| Keyword | Heterogeneous Beliefs Quadratic Derivative Continuous Trading Dynamically E¤ectively Complete Market Asset Pricing |
| Language | 英語English |
| The Source to Article | PB_Publication |
| PUB ID | 39590 |
| Document Type | Report |
| Collection | University of Macau |
| Corresponding Author | Qin, Z. |
| Recommended Citation GB/T 7714 | Qin, Z.. Achieve Pareto Equilibrium with Continuous Speculations. |
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