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An evolutionary finance model with short selling and endogenous asset supply

Author

Listed:
  • Rabah Amir

    (University of Iowa
    Aix-Marseille Université)

  • Sergei Belkov

    (University of Manchester)

  • Igor V. Evstigneev

    (University of Manchester)

  • Thorsten Hens

    (University of Zurich
    Norwegian School of Economics
    University of Lucerne)

Abstract

Evolutionary finance focuses on questions of “survival and extinction” of investment strategies (portfolio rules) in the market selection process. It analyzes stochastic dynamics of financial markets in which asset prices are determined endogenously by a short-run equilibrium between supply and demand. Equilibrium is formed in each time period in the course of interaction of portfolio rules of competing market participants. A comprehensive theory of evolutionary dynamics of this kind has been developed for models in which short selling is not allowed and asset supply is exogenous. The present paper extends the theory to a class of models with short selling and endogenous asset supply.

Suggested Citation

  • Rabah Amir & Sergei Belkov & Igor V. Evstigneev & Thorsten Hens, 2022. "An evolutionary finance model with short selling and endogenous asset supply," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 655-677, April.
    • Handle: RePEc:spr:joecth:v:73:y:2022:i:2:d:10.1007_s00199-020-01269-x
    DOI: 10.1007/s00199-020-01269-x
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    Cited by:

    1. Rabah Amir & Bernard Cornet & M. Ali Khan & David Levine & Edward C. Prescott, 2022. "Special Issue in honor of Nicholas C. Yannelis – Part II," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 377-385, April.
    2. Evstigneev, Igor & Hens, Thorsten & Potapova, Valeriya & Schenk-Hoppé, Klaus R., 2020. "Behavioral equilibrium and evolutionary dynamics in asset markets," Journal of Mathematical Economics, Elsevier, vol. 91(C), pages 121-135.

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    More about this item

    Keywords

    Evolutionary finance; Survival portfolio rules; Market games; Stochastic games;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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