We consider the market of n financial agents who aim to increase their utilities by efficiently sharing their random endowments. Given the endogenously derived optimal sharing rules, we address the situation where agentsdo not reveal their true endowments, but instead they report as endowments the random quantities that maximize their utilities when the sharing rulesare applied. Under mean-variance preferences, it is shown that each agent should share only a fraction of his true endowment and report that he is exposed to some endowment he does not possess. Furthermore, if all agents follow similar strategic behavior, the market equilibrates at a Nash-type equilibrium which benefits the speculators and results in risk sharing inefficiency. This agents ' strategic behavior, when applied to oligopoly markets of exogenously given financial securities, changes the effective market portfolio and implies a price pressure on the traded securities in the CAPM .
The paper studies an oligopolistic equilibrium model of financial agents who aim to share their random endowments. The risk-sharing securities and their prices are endogenously determined as the outcome of a strategic game played among all the participating agents. In the complete-market setting, each agent's set of strategic choices consists of the security payoffs and the pricing kernel that are consistent with the optimal-sharing rules; while in the incomplete setting, agents respond via demand functions on a vector of given tradeable securities. It is shown that at the (Nash) risk-sharing equilibrium, the sharing securities are suboptimal, since agents submit for sharing different risk exposures than their true endowments. On the other hand, the Nash equilibrium prices stay unaffected by the game only in the special case of agents with the same risk aversion. In addition, agents with sufficiently lower risk aversion act as predatory traders, since they absorb utility surplus from the high risk averse agents and reduce the efficiency of sharing. The main results of the paper also hold under the generalized models that allow the presence of noise traders and heterogeneity in agents' beliefs .
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We consider the market of n
The paper studies an oligopolistic equilibrium model of
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increase their utilities by efficiently sharing their
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Given the endogenously derived optimal sharing rules, we address the situation where agentsdo not reveal their true endowments, but instead they report as endowments the random quantities that maximize their utilities when the sharing rulesare applied. Under mean-variance preferences, it
The risk-sharing securities and their prices are endogenously determined as the outcome of a strategic game played among all the participating agents. In the complete-market setting, each agent's set of strategic choices consists of the security payoffs and the pricing kernel that are consistent with the optimal-sharing rules; while in the incomplete setting, agents respond via demand functions on a vector of given tradeable securities. It
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each agent should share only a fraction of his true endowment and report that he is exposed to some endowment he does not possess. Furthermore, if all agents follow similar strategic behavior, the market equilibrates at a Nash-type equilibrium which benefits the speculators and results in risk sharing inefficiency. This agents ' strategic behavior, when applied to oligopoly markets of exogenously given financial securities, changes the effective market portfolio and implies a price pressure on the traded securities in the CAPM
at the (Nash) risk-sharing equilibrium, the sharing securities are suboptimal, since agents submit for sharing different risk exposures than their true endowments. On the other hand, the Nash equilibrium prices stay unaffected by the game only in the special case of agents with the same risk aversion. In addition, agents with sufficiently lower risk aversion act as predatory traders, since they absorb utility surplus from the high risk averse agents and reduce the efficiency of sharing. The main results of the paper also hold under the generalized models that allow the presence of noise traders and heterogeneity in agents' beliefs