Competitive Nash Equilibria and Two Period Fund Separation
AbstractWe 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.
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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 172.
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strategic behavior; competitive behavior; two-fund-separation; CAPM.;
Find related papers by 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, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-09 (All new papers)
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