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An Application of Evolutionary Finance to Firms Listed in the Swiss Market Index

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Author Info
Thorsten Hens
Klaus Reiner Schenk-Hoppé
Martin Stalder

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Abstract

This paper presents an application of evolutionary portfolio theory to stocks listed in the Swiss Market Index (SMI). We study numerically the long-run outcome of the competition of rebalancing rules for market shares in a stock market with actual dividends taken from firms listed in the SMI. Returns are endogenous because prices are determined by supply and demand stemming from the rebalancing rules. Our simulations show that in competition with rebalancing rules derived from Mean-Variance Optimization, Maximum Growth Theory and Behavioral Finance, the evolutionary portfolio rule discovered in Hens and Schenk-Hoppé (2001) will eventually hold total market wealth. According to this simple rule the portfolio weights should be proportional to the expected relative dividends of the assets.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp128.

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Handle: RePEc:zur:iewwpx:128

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Related research
Keywords: Evolutionary Finance Behavioral Finance CAPM Rebalancing Rules Growth Optimal Portfolio.

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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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  1. Bruno S. Frey & Stephan Meier, . "Pro-Social Behavior, Reciprocity or Both?," IEW - Working Papers iewwp107, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  2. Lars Feld & Bruno Frey, 2000. "Trust Breeds Trust: How Taxpayers are Treated," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  3. Bruno Frey & Stephan Meier, 2005. "Selfish and Indoctrinated Economists?," European Journal of Law and Economics, Springer, vol. 19(2), pages 165-171, April. [Downloadable!] (restricted)
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  4. Rafael Lalive & Jan C. van Ours & Josef Zweimüller, 2005. "The Effect Of Benefit Sanctions On The Duration Of Unemployment," Journal of the European Economic Association, MIT Press, vol. 3(6), pages 1386-1417, December. [Downloadable!] (restricted)
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  5. Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2001. "Fairness, Incentives and Contractual Incompleteness," CEPR Discussion Papers 2790, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Bruno Frey & Alois Stutzer, 2001. "Beyond Bentham -- Measuring Procedural Utility," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  7. Rabah Amir & Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, . "Market Selection and Survival of Investment Strategies," IEW - Working Papers iewwp091, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  8. Bruno Frey, 2001. "Flexible Citizenship for a Global Society," Berkeley Olin Program in Law & Economics, Working Paper Series 1018, Berkeley Olin Program in Law & Economics. [Downloadable!]
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