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Evolution in Pecunia

Author

Listed:
  • Rabah Amir

    (University of Iowa - Henry B. Tippie College of Business - Department of Economics; Universidad de los Andes, Chile - School of Business and Economics)

  • Igor V. Evstigneev

    (University of Manchester - Economics, School of Social Sciences)

  • Thorsten Hens

    (University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute)

  • Valeriya Potapova

    (University of Manchester)

  • Klaus Reiner Schenk-Hoppé

    (University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance)

Abstract

The paper models evolution in pecunia in the realm of finance. Financial markets are explored as evolving biological systems. Investors pursuing diverse investment strategies compete for the market capital. Some `survive' and some `become extinct.' A central goal is to identify evolutionary stable, i.e. guaranteeing survival, investment strategies. The problem is studied in a framework combining stochastic dynamics and evolutionary game theory. The model proposed employs only objectively observable market data, in contrast with traditional settings relying upon unobservable investors characteristics (utilities and beliefs). The main result is a construction of an evolutionary stable strategy in the model at hand.

Suggested Citation

  • Rabah Amir & Igor V. Evstigneev & Thorsten Hens & Valeriya Potapova & Klaus Reiner Schenk-Hoppé, 2020. "Evolution in Pecunia," Swiss Finance Institute Research Paper Series 20-44, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2044
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    Cited by:

    1. Hirshleifer, David & Lo, Andrew W. & Zhang, Ruixun, 2023. "Social contagion and the survival of diverse investment styles," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    2. Igor V. Evstigneev & Mohammad Javad Vanaei, 2022. "Evolutionary Behavioural Finance: A Model with Endogenous Asset Payoffs," Economics Discussion Paper Series 2202, Economics, The University of Manchester.
    3. Mikhail Zhitlukhin, 2021. "Capital growth and survival strategies in a market with endogenous prices," Papers 2101.09777, arXiv.org.

    More about this item

    Keywords

    Evolutionary finance; financial markets; evolutionarily stable investment strategies; survival; stochastic dynamics; local stability;
    All these keywords.

    JEL classification:

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

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