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Market selection with learning and catching up with the Joneses

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  • Roman Muraviev

Abstract

We study the market selection hypothesis in complete financial markets, populated by heterogeneous agents. We allow for a rich structure of heterogeneity: individuals may differ in their beliefs concerning the economy, information and learning mechanism, risk aversion, impatience and ‘catching up with the Joneses’ preferences. We develop new techniques for studying the long-run behavior of such economies, based on Strassen’s functional law of the iterated logarithm. In particular, we explicitly determine an agent’s survival index and show how the latter depends on the agent’s characteristics. We use these results to study the long-run behavior of the equilibrium interest rate and the market price of risk. Copyright Springer-Verlag 2013

Suggested Citation

  • Roman Muraviev, 2013. "Market selection with learning and catching up with the Joneses," Finance and Stochastics, Springer, vol. 17(2), pages 273-304, April.
    • Handle: RePEc:spr:finsto:v:17:y:2013:i:2:p:273-304
    DOI: 10.1007/s00780-012-0187-y
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    Cited by:

    1. Dindo, Pietro, 2019. "Survival in speculative markets," Journal of Economic Theory, Elsevier, vol. 181(C), pages 1-43.
    2. Norman, Thomas W.L., 2020. "Market selection with an endogenous state," Journal of Mathematical Economics, Elsevier, vol. 91(C), pages 51-59.
    3. Massari, Filippo, 2017. "Markets with heterogeneous beliefs: A necessary and sufficient condition for a trader to vanish," Journal of Economic Dynamics and Control, Elsevier, vol. 78(C), pages 190-205.
    4. He, Xue-Zhong & Shi, Lei, 2017. "Index portfolio and welfare analysis under heterogeneous beliefs," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 64-79.

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    More about this item

    Keywords

    Natural selection; Heterogeneous equilibrium; Diverse beliefs; Learning; Survival index; Catching up with the Joneses; 91B69; 91B51; 91B25; 91B16; C60; D53;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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