Research on the Organization of Markets in relation to the Heterogeneity of Information and the Decision-Making of Economic Agents

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There are basically two lines of research in which we obtained results. One is concerned with the information structure of the economy and the possibility of price bubbles in the markets. The other is concerned with the market organization of forward transactions from the view point of risk reduction.In recent years it has been shown that speculative behavior and bubbles may arise as a result of rational behaviors of traders in their market transactions of securities. In a simplified model of multiperiod security trading with a risky asset and a riskless asset with consumptions taking place at the final date, we considered the implications of price bubbles. Assuming that the information partitions of each trader at each date are countable and satisfy a 'continuity' requirement, we showed that traders must have mutual misperceptions at equilibrium about the market situation where every individual can perceive that the prevailing market equilibrium price of the security strictly exceeds the discounted value of its price at the final date.In the other paper we introduced a formal model of foreign exchange contracts netting, and presented an analysis of multilateral and bilateral netting from the view point of credit risk reduction. In particular, we compared these two different forms of netting arrangements with respect to inherent systemic risks involved. The point of our analysis is to show that when more than two banks defaults, indirect loss sharing of participants could harm the participants to multilateral netting beyond the potential risk level of bilateral netting arrangements. The concept of systemic credit exposure was used for this purpose.