Knowledge that Transforms

Most rational expectations market equilibrium models are not models of price formation, and naive mechanisms leading to such equilibria can be severely manipulable. In this paper, a bidding model is developed which has the market-like features that bidders act as price takers and that prices convey information. Higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices. Bidders can benefit from trading only if they have a transactions motive or if they have access to inside information. Apart from exceptional cases, prices are not fully revealing. A two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing, resolving a well-known paradox.

[A conceptual framework is suggested for integrating fixed effects and random effects models into one framework. In that framework, the pertinent distribution is a convolution of two distributions; one is a degenerate distribution. A method is suggested and analyzed for separating between the two distributions when the second distribution is normal.]

[This paper analyzes a model of a futures market in which both pure speculators and producers participate. Traders form rational expectations about the return on holding futures (the spot price) and the amount they will produce, on the basis of diverse private information and the futures price. Constant absolute risk aversion utility functions and normal distributions are assumed in the model. A set of necessary and sufficient conditions is established for the informational efficiency of the futures market, which is taken to mean that the futures price is a sufficient statistic for information about the spot price. In this model the futures price is not in general a sufficient statistic unless there is information available about only one side of the spot market, in which case the sufficient statistic equilibrium is shown to be the only rational expectations equilibrium in which price is a linear function of the information.]

[Let the time series Y_t satisfy extlesstex-math extgreater$Y_ \= extbackslashalpha + extbackslashrho Y_ -1\+e_ $ extless/tex-math extgreater, where Y_1 is fixed and the e_t are normal independent (0, σ ^2) random variables. The likelihood ratio test of the hypothesis that (α, ρ) = (0, 1) is investigated and a limit representation for the test statistic is presented. Percentage points for the limiting distribution and for finite sample distributions are estimated. The distribution of the least squares estimator of α is also discussed. A similar investigation is conducted for the model containing a time trend.]

[This paper analyzes nonlinear growth models in which agents' expectations have a role in determining present behavior. Assuming agents have perfect foresight, we develop sufficiency conditions for the local stability of a given steady state. We then briefly discuss several examples in which stability prevails.]

[Part I of this paper introduces a general framework for the discussion of discrete production sets and the associated programming problems which arise when a particular endowment of factors is specified. In this part of the paper we shall apply these ideas to integer programming problems with two activities and bring to bear some of the basic considerations of the theory of computational complexity. The numbering of sections, figures, and equations will follow those used in Part I.]

John Lintner, Are Markets Efficient? Tests of Alternative Hypotheses: Discussion, The Journal of Finance, Vol. 36, No. 2, Papers and Proceedings of the Thirty Ninth Annual Meeting American Finance Association, Denver, September 5-7, 1980 (May, 1981), pp. 307-311