Asset Markets and Investment Decisions

17 Pages Posted: 13 May 2003

See all articles by Anja De Waegenaere

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

H. M. Polemarchakis

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Luigi Ventura

Sapienza, University of Rome

Abstract

In an incomplete asset market, firms assign values to investment plans by projecting their payoffs on the span of the payoffs of marketed assets. This is a criterion that does not require firms to possess information, such as the marginal valuation of revenue across date-events by shareholders, which is not directly observable; rather, it is based on the prices and payoffs of marketed assets. Under standard assumptions, competitive equilibria exist. However, even in the absence of nominal assets, competitive equilibrium allocations are generically indeterminate. The set of competitive equilibria is indexed by the price level at each state of the world, which has implications for the effectiveness of monetary policy.

Suggested Citation

De Waegenaere, Anja M.B. and Polemarchakis, Herakles and Ventura, Luigi, Asset Markets and Investment Decisions. International Economic Review, Vol. 43, pp. 857-873, 2002. Available at SSRN: https://ssrn.com/abstract=324696

Anja M.B. De Waegenaere (Contact Author)

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Herakles Polemarchakis

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Luigi Ventura

Sapienza, University of Rome ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

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