Complete and incomplete financial markets in multi-good economies

Abstract

We investigate conditions for endogenous incompleteness and completeness in continuoustime nancial markets driven by di usion processes with multiple consumption goods and heterogeneous agents. We show that for a class of utility functions the nancial market is endogenously incomplete. A su cient condition for market completeness is that the dividend di usion matrix in units of the numeraire good is invertible. Further, nancial 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.