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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 (1956) rule of “betting one’s beliefs.”

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File URL: http://hdl.handle.net/11250/164076
Our checks indicate that this address may not be valid because: 403 Forbidden (http://hdl.handle.net/11250/164076 [303 See Other]--> http://brage.bibsys.no/xmlui/bitstream/handle/11250/164075/1/evstigneev%20igor%20v%201705.pdf). If this is indeed the case, please notify (Stein Fossen)


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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2005/17.

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Length: 33 pages
Date of creation: 22 Dec 2005
Date of revision:
Handle: RePEc:hhs:nhhfms:2005_017
Contact details of provider: Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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  1. repec:att:wimass:9625 is not listed on IDEAS
  2. Carlos Alós-Ferrer & Ana B. Ania, 2003. "The Asset Market Game," Vienna Economics Papers 0320, University of Vienna, Department of Economics.
  3. Rabah Amir & Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, . "Market Selection and Survival of Investment Strategies," IEW - Working Papers 091, Institute for Empirical Research in Economics - University of Zurich.
  4. repec:att:wimass:9725 is not listed on IDEAS
  5. J. Doyne Farmer & Andrew W. Lo, 1999. "Frontiers of Finance: Evolution and Efficient Markets," Working Papers 99-06-039, Santa Fe Institute.
  6. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
  7. Igor Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2003. "Evolutionary Stable Stock Markets," Discussion Papers 03-39, University of Copenhagen. Department of Economics.
  8. Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2002. "Market Selection Of Financial Trading Strategies: Global Stability," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 329-339.
  9. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
  10. Jean-Jacques Laffont, 1989. "The Economics of Uncertainty and Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121360, June.
  11. Schlicht, Ekkehart, . "Isolation and Aggregation in Economics," Monographs in Economics, University of Munich, Department of Economics, number 3.
  12. 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 937-68, October.
  13. 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.
  14. 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.
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