Selection in asset markets: the good, the bad, and the unknown
In this paper, we use a series of simple examples to illustrate how wealth-driven selection works in a market for Arrow securities. Our analysis delivers both a good and a bad message. The good message is that, when traders invest constant fractions of their wealth in each asset and have equal consumption rates, markets are informationally effcient: the best informed agent is rewarded and asset prices eventually reflect this information. However, and this is the bad message, when asset demands are not constant fractions of wealth but dependent upon prices, markets might behave suboptimally. In this case, asymptotic prices depend on preferences and beliefs of the whole ecology of traders and do not, in general, reflect the best available information. We show that the key difference between the two cases lies in the local, i.e. price dependent, versus global nature of wealth-driven selection.
|Date of creation:||17 May 2011|
|Contact details of provider:|| Postal: Piazza dei Martiri della Liberta, 33, 56127 Pisa|
Web page: http://www.lem.sssup.it/
More information through EDIRC
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.:
- 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.
- 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.
- 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).
- 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.
- 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.
- Anufriev, Mikhail & Bottazzi, Giulio & Pancotto, Francesca, 2006. "Equilibria, stability and asymptotic dominance in a speculative market with heterogeneous traders," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1787-1835.
- Giulio Bottazzi & Pietro Dindo, 2010.
"Evolution and market behavior with endogenous investment rules,"
LEM Papers Series
2010/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Bottazzi, Giulio & Dindo, Pietro, 2014. "Evolution and market behavior with endogenous investment rules," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 121-146.
- Lawrence Blume & David Easley, 2010. "Heterogeneity, Selection, and Wealth Dynamics," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 425-450, 09.
- Alvaro Sandroni, 2000. "Do Markets Favor Agents Able to Make Accurate Predicitions?," Econometrica, Econometric Society, vol. 68(6), pages 1303-1342, November.
- Sandroni, Alvaro, 2005. "Market selection when markets are incomplete," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 91-104, February.
- Anufriev, Mikhail & Dindo, Pietro, 2010.
"Wealth-driven selection in a financial market with heterogeneous agents,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 73(3), pages 327-358, March.
- Mikhail Anufriev & Pietro Dindo, 2007. "Wealth-driven Selection in a Financial Market with Heterogeneous Agents," LEM Papers Series 2007/27, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Mikhail Anufriev & Pietro Dindo, 2009. "Wealth-driven Selection in a Financial Market with Heterogeneous Agents," Post-Print hal-00763494, HAL.
- Anufriev, M. & Bottazzi, G., 2009.
"Market Equilibria under Procedural Rationality,"
CeNDEF Working Papers
09-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Richard R. Nelson & Sidney G. Winter, 2002. "Evolutionary Theorizing in Economics," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 23-46, Spring.
- Evstigneev, Igor V. & Hens, Thorsten & Schenk-Hoppé, Klaus Reiner, 2008.
"Globally evolutionarily stable portfolio rules,"
Journal of Economic Theory,
Elsevier, vol. 140(1), pages 197-228, May.
- Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
When requesting a correction, please mention this item's handle: RePEc:ssa:lemwps:2011/11. 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: ()
If references are entirely missing, you can add them using this form.