Evolutionary Stable Stock Markets
AbstractThis paper shows that a stock market is evolutionary stable if and only if stocks are evaluated by expected relative dividends. Any other market can be invaded by portfolio rules that will gain market wealth and hence change the valuation. In the model the valuation of assets is given by the wealth average of the portfolio rules in the market. The wealth dynamics is modelled as a random dynamical system. Necessary and sufficient conditions are derived for the evolutionary stability of portfolio rules when (relative) dividend payoffs form a stationary Markov process. These local stability conditions lead to a unique evolutionary stable strategy according to which assets are evaluated by expected relative dividends.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 03-39.
Length: 22 pages
Date of creation: Oct 2003
Date of revision:
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More information through EDIRC
evolutionary finance; portfolio theory; incomplete markets;
Other versions of this item:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-16 (All new papers)
- NEP-CFN-2003-11-16 (Corporate Finance)
- NEP-FIN-2003-11-16 (Finance)
- NEP-FMK-2003-11-16 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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