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Market Selection and Survival of Investment Strategies

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Author Info
Rabah Amir
Igor V. Evstigneev
Thorsten Hens
Klaus Reiner Schenk-Hoppé

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Abstract

The paper analyzes the process of market selection of investment strategies in an incomplete asset market. The payoffs of the as-sets depend on random factors described in terms of a discrete-time Markov process. Market participants make dynamic investment de-cisions based on their observations and time. We show that a trader distributing wealth across available assets according to the relative expected returns eventually accumulates the entire market wealth. The result obtains under the assumption that the trader's strategy is asymptotically distinct from the CAPM strategy (prescribing in-vestment in the market portfolio). This assumption turns out to be essentially necessary for the conclusion.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp091.

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Handle: RePEc:zur:iewwpx:091

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Related research
Keywords: evolutionary finance; portfolio theory; investment strategies; CAPM; market selection; incomplete markets;

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Find related papers by JEL classification:
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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    Other versions:
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This page was last updated on 2009-11-19.

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