Globally evolutionarily stable portfolio rules
The paper examines a dynamic model of a financial market with endogenous asset prices determined by short-run equilibrium of supply and demand. Assets pay dividends that are partially consumed and partially reinvested. The traders use fixed-mix investment strategies (portfolio rules), distributing their wealth between assets in fixed proportions. Our main goal is to identify globally evolutionarily stable strategies, allowing an investor to "survive," i.e., to accumulate in the long run a positive share of market wealth, regardless of the initial state of the market. It is shown that there is a unique portfolio rule with this property--an analogue of the famous Kelly rule of "betting your beliefs." A game theoretic interpretation of this result is given.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alos-Ferrer, Carlos & Ania, Ana B., 2005.
"The asset market game,"
Journal of Mathematical Economics,
Elsevier, vol. 41(1-2), pages 67-90, February.
- Amir, Rabah & Evstigneev, Igor V. & Hens, Thorsten & Schenk-Hoppe, Klaus Reiner, 2005.
"Market selection and survival of investment strategies,"
Journal of Mathematical Economics,
Elsevier, vol. 41(1-2), pages 105-122, February.
- Rabah Amir & Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppï¿½, "undated". "Market Selection and Survival of Investment Strategies," IEW - Working Papers 091, Institute for Empirical Research in Economics - University of Zurich.
- R Amir & I Evstigneev & T Hens & K R Schenk-Hoppé, 2002. "Market Selection and Survival of Investment Strategies," The School of Economics Discussion Paper Series 0215, Economics, The University of Manchester.
- Rabah Amir & Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2002. "Market Selection and Survival of Investment Strategies," Discussion Papers 02-16, University of Copenhagen. Department of Economics.
- AMIR, Rabah & EVSTIGNEEV, Igor & HENS, Thorsten & SCHENK-HOPPÉ, Klaus Reiner, 2003. "Market selection and survival of investment strategies," CORE Discussion Papers 2003099, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2002.
"Market Selection Of Financial Trading Strategies: Global Stability,"
Wiley Blackwell, vol. 12(4), pages 329-339.
- Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppï¿½, "undated". "Market Selection of Financial Trading Strategies: Global Stability," IEW - Working Papers 083, Institute for Empirical Research in Economics - University of Zurich.
- Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-968, October.
- Dempster, M. A. H. & Germano, M. & Medova, E. A. & Villaverde, M., 2003. "Global Asset Liability Management," British Actuarial Journal, Cambridge University Press, vol. 9(01), pages 137-195, April.
- Arthur, W.B. & Holland, J.H. & LeBaron, B. & Palmer, R. & Tayler, P., 1996.
"Asset Pricing Under Endogenous Expectations in an Artificial Stock Market,"
9625, Wisconsin Madison - Social Systems.
- W. Brian Arthur & John H. Holland & Blake LeBaron & Richard Palmer & Paul Taylor, 1996. "Asset Pricing Under Endogenous Expectation in an Artificial Stock Market," Working Papers 96-12-093, Santa Fe Institute.
- Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211-211.
- Igor Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppï¿½, "undated".
"Evolutionary Stable Stock Markets,"
IEW - Working Papers
170, Institute for Empirical Research in Economics - University of Zurich.
- Arthur, W.B. & LeBaron, B. & Palmer, R., 1997.
"Time Series Properties of an Artificial Stock Market,"
9725, Wisconsin Madison - Social Systems.
- LeBaron, Blake & Arthur, W. Brian & Palmer, Richard, 1999. "Time series properties of an artificial stock market," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1487-1516, September.
- Schlicht, Ekkehart, . "Isolation and Aggregation in Economics," Monographs in Economics, University of Munich, Department of Economics, number 3, December.
- Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
- J. Doyne Farmer & Andrew W. Lo, 1999. "Frontiers of Finance: Evolution and Efficient Markets," Working Papers 99-06-039, Santa Fe Institute.
- Jean-Jacques Laffont, 1989. "The Economics of Uncertainty and Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121360, September.
When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:140:y:2008:i:1:p:197-228. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.