An Application of Evolutionary Finance to Firms Listed in the Swiss Market Index

Zurich IEER Working Paper No. 128

28 Pages Posted: 19 Feb 2003

See all articles by Thorsten Hens

Thorsten Hens

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

Klaus Reiner Schenk-Hoppé

The University of Manchester - Department of Economics

Martin Stalder

Universitat Zurich

Date Written: August 21, 2002

Abstract

This paper presents an application of evolutionary portfolio theory to stocks listed in the Swiss Market Index (SMI). We study numerically the long-run outcome of the competition of rebalancing rules for market shares in a stock market with actual dividends taken from firms listed in the SMI. Returns are endogenous because prices are determined by supply and demand stemming from the rebalancing rules. Our simulations show that in competition with rebalancing rules derived from Mean-Variance Optimization, Maximum Growth Theory and Behavioral Finance, the evolutionary portfolio rule discovered in Hens and Schenk-Hoppe (2001) will eventually hold total market wealth. According to this simple rule the portfolio weights should be proportional to the expected relative dividends of the assets.

Keywords: Evolutionary Finance, Behavioral Finance, CAPM, Rebalancing Rules, Growth Optimal Portfolio

JEL Classification: D52, D81, D83, G11

Suggested Citation

Hens, Thorsten and Schenk-Hoppé, Klaus Reiner and Stalder, Martin, An Application of Evolutionary Finance to Firms Listed in the Swiss Market Index (August 21, 2002). Zurich IEER Working Paper No. 128, Available at SSRN: https://ssrn.com/abstract=344220 or http://dx.doi.org/10.2139/ssrn.344220

Thorsten Hens (Contact Author)

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

Klaus Reiner Schenk-Hoppé

The University of Manchester - Department of Economics ( email )

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

Martin Stalder

Universitat Zurich ( email )

Institute for Empirical Economic Research
Bluemlisalpstrasse 10
CH-8006 Zurich
Switzerland

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