Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/221555
Authors: 
Sandroni, Alvaro
Year of Publication: 
1997
Series/Report no.: 
Discussion Paper No. 1199
Abstract: 
In this paper I consider a dynamically complete market model without intrinsic uncertainty. The only uncertainty is modelled by sunspots. Agents' beliefs are heterogeneous, but eventually become homogeneous in the sense that agents' beliefs are identical in the limit. I show that if some states of nature occur rarely then arbitrarily large market crashes may occur infinitely often. This result contrasts with Cass and Shell's (83) results which show that when beliefs are homogeneous, in complete markets without intrinsic uncertainty, sunspots do not matter.
Subjects: 
Convergence to Rational Expectations
Learning
Rate Events
Market Crashes
JEL: 
D83
Document Type: 
Working Paper

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