Market Selection and Survival of Investment Strategies

Zurich IEER Working Paper No. 91

23 Pages Posted: 14 Nov 2001

See all articles by Rabah Amir

Rabah Amir

University of Arizona - Department of Economics; University of Arizona

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance

Igor V. Evstigneev

University of Manchester - Economics, School of Social Sciences

Thorsten Hens

University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute

Date Written: October 2001

Abstract

The paper analyzes the process of market selection of investment strategies in an incomplete asset market. The pay offs of the assets depend on random factors described in terms of a discrete-time Markov process. Market participants make dynamic investment decisions based on their observations and time. We show that a trader distributing wealth across available assets according to the relative expected returns eventually accumulates the entire market wealth. The result obtains under the assumption that the trader's strategy is asymptotically distinct from the CAPM strategy (prescribing investment in the market portfolio). This assumption turns out to be essentially necessary for the conclusion.

Keywords: evolutionary finance, portfolio theory, investment strategies, CAPM, market selection, incomplete markets

JEL Classification: D52, D81, D83, G11

Suggested Citation

Amir, Rabah and Schenk-Hoppé, Klaus Reiner and Evstigneev, Igor V. and Hens, Thorsten, Market Selection and Survival of Investment Strategies (October 2001). Zurich IEER Working Paper No. 91. Available at SSRN: https://ssrn.com/abstract=290912 or http://dx.doi.org/10.2139/ssrn.290912

Rabah Amir (Contact Author)

University of Arizona - Department of Economics ( email )

Tucson, AZ 85721
United States

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Igor V. Evstigneev

University of Manchester - Economics, School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom
+44 161 2754275 (Phone)
+44 161 2754812 (Fax)

HOME PAGE: http://www.evstigneev.net

Thorsten Hens

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Zurich, 8032
Switzerland
+41-44 634 37 06 (Phone)

Norwegian School of Economics and Business Administration (NHH)

Helleveien 30
Bergen, 5045
Norway

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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