Market selection and survival of investment strategies
The paper analyzes the process of market selection of investment strategies in an incomplete market of short-lived assets. In the model under study, asset payoffs depend on exogenous random factors. Market participants use dynamic investment strategies taking account of the available information about current and previous events. It is shown that an investor allocating wealth across the assets according to their conditional expected payoffs eventually accumulates total market wealth, provided the investor's strategy is asymptotically distinct from the portfolio rule suggested by the Capital Asset Pricing Model. This assumption turns out to be essentially necessary for the result.
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"Evolutionary Dynamics in Financial Markets With Many Trader Types,"
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"Heterogeneous beliefs and routes to chaos in a simple asset pricing model,"
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Elsevier, vol. 22(8-9), pages 1235-1274, August.
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