Market selection and survival of investment strategies
The paper analyzes the process of market selection of investment strategies in an incomplete asset market. The payoffs of the as-sets depend on random factors described in terms of a discrete-time Markov process. Market participants make dynamic investment de-cisions based on their observations and time. We show that a trader distributing wealth across available assets according to the relative expected returns eventually accumulates the entire market wealth. The result obtains under the assumption that the trader's strategy is asymptotically distinct from the CAPM strategy (prescribing in-vestment in the market portfolio). This assumption turns out to be essentially necessary for the conclusion.
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- W.A. Brock, C.H. Hommes and F.O.O. Wagener, 2001.
"Evolutionary dynamics in financial markets with many trader types,"
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"Evolutionary Stability of Portfolio Rules in Incomplete Markets,"
03-03, University of Copenhagen. Department of Economics.
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"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.
- Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-286, April.
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Elsevier, vol. 22(8-9), pages 1235-1274, August.
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- Alvaro Sandroni, 2000. "Do Markets Favor Agents Able to Make Accurate Predicitions?," Econometrica, Econometric Society, vol. 68(6), pages 1303-1342, November.
- Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211-211.
- Thorsten Hens & Klaus Schenk-Hoppï¿½, "undated". "Evolution of Portfolio Rules in Incomplete Markets," IEW - Working Papers 074, Institute for Empirical Research in Economics - University of Zurich.
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