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| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Evolutionary stability of portfolio rules in incomplete markets |
| Organization Unit | |
| Authors |
|
| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of Mathematical Economics |
| Publisher | Elsevier |
| Geographical Reach | international |
| ISSN | 0304-4068 |
| Volume | 41 |
| Number | 1-2 |
| Page Range | 43 - 66 |
| Date | 2005 |
| Abstract Text | This paper studies the evolution of wealth shares of portfolio rules in incomplete markets with short-lived assets. Prices are determined endogenously. The performance of a portfolio rule in the process of repeated reinvestment of wealth is determined by the wealth share eventually conquered in competition with other portfolio rules. Using random dynamical systems theory, we derive necessary and sufficient conditions for the evolutionary stability of portfolio rules. In the case of Markov (in particular i.i.d.) payoffs these local stability conditions lead to a simple portfolio rule that is the unique evolutionary stable strategy. This rule possesses an explicit representation. Moreover, it is demonstrated that mean–variance optimization is not evolutionary stable while the CAPM-rule always imitates the best portfolio rule and survives. |
| Free access at | Related URL |
| Related URLs | |
| Digital Object Identifier | 10.1016/j.jmateco.2003.01.001 |
| Other Identification Number | merlin-id:19947 |
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