The asset market game

Carlos Alós-Ferrer; Ana B. Ania

doi:10.1016/j.jmateco.2004.02.005

The asset market game

Carlos Alós-Ferrer, Ana B. Ania

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

This paper models asset markets as a game where assets pay according to an arbitrary returns matrix, investors decide on fractions of wealth to allocate to each asset, and prices result from market clearing. The only pure-strategy Nash equilibrium is to split wealth proportionally to the assets' expected returns, which can be interpreted as investing according to the fundamentals. Further, the equilibrium strategy is evolutionarily stable in the sense of Schaffer [Journal of Theoretical Biology 132 (1988) 469-478]. We also study the stability properties of the equilibrium in an evolutionary dynamics where wealth flows with higher probability into those strategies that obtain higher realized payoffs.

Original language	English (US)
Pages (from-to)	67-90
Number of pages	24
Journal	Journal of Mathematical Economics
Volume	41
Issue number	1-2
DOIs	https://doi.org/10.1016/j.jmateco.2004.02.005
State	Published - Feb 2005

Keywords

Asset markets
Evolutionary stability
Market efficiency
Portfolio choice

ASJC Scopus subject areas

Economics and Econometrics
Applied Mathematics

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10.1016/j.jmateco.2004.02.005

Cite this

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title = "The asset market game",

abstract = "This paper models asset markets as a game where assets pay according to an arbitrary returns matrix, investors decide on fractions of wealth to allocate to each asset, and prices result from market clearing. The only pure-strategy Nash equilibrium is to split wealth proportionally to the assets' expected returns, which can be interpreted as investing according to the fundamentals. Further, the equilibrium strategy is evolutionarily stable in the sense of Schaffer [Journal of Theoretical Biology 132 (1988) 469-478]. We also study the stability properties of the equilibrium in an evolutionary dynamics where wealth flows with higher probability into those strategies that obtain higher realized payoffs.",

keywords = "Asset markets, Evolutionary stability, Market efficiency, Portfolio choice",

author = "Carlos Al{\'o}s-Ferrer and Ania, {Ana B.}",

note = "Funding Information: We are indebted to Larry Blume, David Easley, Piero Gottardi, Thorsten Hens, Manfred Nermuth, Gerhard Orosel, Alex Possajennikov, Fernando Vega-Redondo, J{\"o}rgen Weibull, and two anonymous referees for valuable suggestions which greatly improved the paper. All remaining errors are ours. We gratefully acknowledge financial support from the Austrian Science Fund (FWF) under Project P15281, and from the Austrian Exchange Service ({\"O}AD) and the Spanish Ministry of Education and Culture under the Spain–Austria Acciones Integradas respective projects 18/2003 and HU02-4. ",

year = "2005",

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doi = "10.1016/j.jmateco.2004.02.005",

language = "English (US)",

volume = "41",

pages = "67--90",

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T1 - The asset market game

AU - Alós-Ferrer, Carlos

AU - Ania, Ana B.

N1 - Funding Information: We are indebted to Larry Blume, David Easley, Piero Gottardi, Thorsten Hens, Manfred Nermuth, Gerhard Orosel, Alex Possajennikov, Fernando Vega-Redondo, Jörgen Weibull, and two anonymous referees for valuable suggestions which greatly improved the paper. All remaining errors are ours. We gratefully acknowledge financial support from the Austrian Science Fund (FWF) under Project P15281, and from the Austrian Exchange Service (ÖAD) and the Spanish Ministry of Education and Culture under the Spain–Austria Acciones Integradas respective projects 18/2003 and HU02-4.

PY - 2005/2

Y1 - 2005/2

N2 - This paper models asset markets as a game where assets pay according to an arbitrary returns matrix, investors decide on fractions of wealth to allocate to each asset, and prices result from market clearing. The only pure-strategy Nash equilibrium is to split wealth proportionally to the assets' expected returns, which can be interpreted as investing according to the fundamentals. Further, the equilibrium strategy is evolutionarily stable in the sense of Schaffer [Journal of Theoretical Biology 132 (1988) 469-478]. We also study the stability properties of the equilibrium in an evolutionary dynamics where wealth flows with higher probability into those strategies that obtain higher realized payoffs.

AB - This paper models asset markets as a game where assets pay according to an arbitrary returns matrix, investors decide on fractions of wealth to allocate to each asset, and prices result from market clearing. The only pure-strategy Nash equilibrium is to split wealth proportionally to the assets' expected returns, which can be interpreted as investing according to the fundamentals. Further, the equilibrium strategy is evolutionarily stable in the sense of Schaffer [Journal of Theoretical Biology 132 (1988) 469-478]. We also study the stability properties of the equilibrium in an evolutionary dynamics where wealth flows with higher probability into those strategies that obtain higher realized payoffs.

KW - Asset markets

KW - Evolutionary stability

KW - Market efficiency

KW - Portfolio choice

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JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

IS - 1-2

ER -

The asset market game

Abstract

Keywords

ASJC Scopus subject areas

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