Capital asset pricing in an overlapping generations model (Q799463)

The objective of this paper is to examine the equilibrium behavior of prices by using the model of Samuelson's overlapping generations. In each period there is an equal number of ``young'' and ``old''. The young are endowed with a divisible consumption good which they may trade for shares of capital assets. These shares are sold by the old and thus form part of their income. In each period, a signal (a piece of information) is given to the young: the signal forms a Markov process and completely determines the dividend payments. Thus, this paper may be regarded as an extension of Lucas' work [see \textit{R. E. Lucas}, Econometrica 46, 1429--1445 (1978; Zbl 0398.90016)] to the case of overlapping generations. The author then attempts to apply the model to an environment where agents possess asymmetric information. Unlike \textit{S. J. Grossman} [Rev. Econ. Stud. 44, 431--449 (1977; Zbl 0371.90011)] and \textit{R. Radner} [Econometrica 47, 655--678 (1979; Zbl 0426.90067)], neither multivariate normality nor finiteness of the number of states of nature are assumed in the paper. It is shown that randomness in the number of informed agents does not confuse the uninformed, which is a quite interesting result. Hopefully, the result derived in the paper will be a starting point for more general models with agents who hold various degrees of partial information.