Complete and Incomplete Financial Markets in Multi-Good Economies
36 Pages Posted: 14 Jul 2009 Last revised: 25 Oct 2015
Date Written: October 19, 2015
We investigate conditions for endogenous incompleteness and completeness in continuous-time financial markets driven by diffusion processes with multiple consumption goods and heterogeneous agents. We show that for a class of utility functions the financial market is endogenously incomplete. A sufficient condition for market completeness is that the dividend diffusion matrix in units of the numeraire good is invertible. Further, financial market completeness can depend on the choice of the numeraire good since changing the numeraire good implies a change of the risk-free asset and the asset structure.
Keywords: Multi-good economies, Financial market incompleteness, Financial market completeness
JEL Classification: G10, G11
Suggested Citation: Suggested Citation