576 he Journal of finance var[W1小]=x2ar[1小 In deriving( 8)and(9)we have used the fact that Woi, r, and Po are known to the firm in period 0. Thus, from(7)9), the consumer's problem is to maximize (1+r)Wo+E[P1]-(1+r)Po)x-2X Var[P1,] by choosing X. Using the calculus, an optimal Xi, Xi, satisfies E[P]-(1+ Thus, the demand for the risky asset depends on its expected price appreciation and on its variance. Let X be the total stock of the risky asset. An equilibrium price in period 0 must cause >i,Xd=X. From(11), the ith trader's demand for the risky asset depends on the information he receives. This depends on the observa- tion he gets, y:. Thus, since the total demand for the risky asset depends on yi2,,,,,,n, it is natural to think of the market clearing price as depending on the yi,i=1, 2,..., n. Let y=(,y2,.,yn), then the equilibrium price is some function of y, Po(y). That is, different information about the return on an asset leads to a different equilibrium price of There are many different functions of y. For a particular function, Po(y) to be equilibrium we require that: for all y, /E[m-(1+n)0=x a, var[ Pily, Po(] (12)states that the total demand for the risky asset must equal the total supply for each y.( Throughout we put no non-negativity constraint on prices. By proper choice of parameters the probability of a negative price can be made arbitrarily small. The ith trader's demand function under the price system Po()is X[P:, E{P1VP(y)]-(1+) a, var[ P1 v, Po(y)] The ith trader's information I; is y, and Po(). He is able to observe his own sample yi and Po(). Po()gives the ith trader some information about the sample