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Competitive Nash Equilibria and Two Period Fund Separation

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  • Thorsten Hens
  • Stefan Reimann
  • Bodo Vogt

Abstract

We suggest a simple asset market model in which we analyze competitive and strategic behavior simultaneously. If for competitive behavior two-fund separation holds across periods then it also holds for strategic behavior. In this case the relative prices of the assets do not depend on whether agents behave strategically or competitively. Those agents acting strategically will however invest less in the common mutual fund. Constant relative risk aversion and absence of aggregate risk are shown to be two alternative sufficient conditions for two-period fund separation. With derivatives further strategic aspects arise and strategic behavior is distinct from competitive behavior even for those utility functions leading to two-fund separation.

Suggested Citation

  • Thorsten Hens & Stefan Reimann & Bodo Vogt, "undated". "Competitive Nash Equilibria and Two Period Fund Separation," IEW - Working Papers 172, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:172
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    File URL: https://www.econ.uzh.ch/apps/workingpapers/wp/iewwp172.pdf
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    Cited by:

    1. Alos-Ferrer, Carlos & Ania, Ana B., 2005. "The asset market game," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 67-90, February.
    2. Adelina Gschwandtner, 2005. "Profit persistence in the 'very' long run: evidence from survivors and exiters," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 793-806.
    3. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2007. "Calculating Tragedy: Assessing The Costs Of Terrorism," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 1-24, February.
    4. Patrick Leoni, 2008. "Market power, survival and accuracy of predictions in financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(1), pages 189-206, January.
    5. Bruno Frey, 2005. "‘‘Just forget it.’’ Memory distortions as bounded rationality," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 4(1), pages 13-25, June.
    6. Dmitry Levando, 2012. "A Survey Of Strategic Market Games," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 57(194), pages 63-106, July - Se.
    7. Manfred Nermuth, 2008. "The Structure of Equilibrium in an Asset Market with Variable Supply," Vienna Economics Papers 0804, University of Vienna, Department of Economics.
    8. Alos-Ferrer, Carlos & Ania, Ana B., 2005. "The asset market game," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 67-90, February.
    9. Gerber, Anke & Hens, Thorsten & Woehrmann, Peter, 2005. "Dynamic General Equilibrium and T-Period Fund Separation," Discussion Papers 2005/16, Norwegian School of Economics, Department of Business and Management Science.

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    More about this item

    Keywords

    strategic behavior; competitive behavior; two-fund-separation; CAPM.;
    All these keywords.

    JEL classification:

    • 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; Information and Knowledge; Communication; Belief; Unawareness

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