The Asset Market Game
AbstractThis paper models asset markets as a game where assets pay according to an arbitrary payoff matrix,investors decide on fractions of wealth to allocate to each asset,and prices result from market clearing. The only pure-strategy Nash equilibrium is to split wealth proportionally to the assets´expected returns, which can be interpreted as investing according to the fundamentals. Further, the equilibrium is evolutionarily stable in the sense of Schaffer (1988). We also study the stability properties of the equilibrium in an evolutionary dynamics where wealth flows with higher probability into those strategies that obtain higher realized payoffs.
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Bibliographic InfoPaper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0320.
Date of creation: Dec 2003
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Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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