Betting under subjective uncertainty
Gierlinger, Johannes (Universitat Autònoma de Barcelona)
MOVE - Markets, Organizations and Votes in Economics

Date:	2015
Description:	28 pàg.
Abstract:	This paper shows that uncertainty-averse agents may trade extrinsic variables on efficient markets. The finding is robust to identical beliefs and strictly convex preferences. Conditional on a realization of fundamentals, the distribution of an otherwise irrelevant variable may depend on the underlying probability regime. This dependence cannot be exploited through trade on fundamentals. I provide necessary and sufficient conditions for the irrelevance of non-fundamental variables undermaxmin, smooth, and variational preferences. These conditions are found to be stringent, except formultiplier preferences (Hansen and Sargent, 2001; Strzalecki, 2011), for which it suffices that the reference priors agree conditional on fundamentals.
Grants:	Ministerio de Ciencia e Innovación ECO2009-09847 European Commission 230589
Rights:	Aquest material està protegit per drets d'autor i/o drets afins. Podeu utilitzar aquest material en funció del que permet la legislació de drets d'autor i drets afins d'aplicació al vostre cas. Per a d'altres usos heu d'obtenir permís del(s) titular(s) de drets.
Language:	Anglès
Document:	Working paper ; recerca
Subject:	Uncertainty ; Sunspots ; Consumption risk ; Variance swaps

28 p, 277.7 KB

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Research literature > Working papers