The evolution of portfolio rules and the capital asset pricing model |
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Authors: | Emanuela Sciubba |
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Institution: | (1) Faculty of Economics, University of Cambridge, Cambridge, CB3 9DD, UK |
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Abstract: | The aim of this paper is to test the performance of capital asset pricing model (CAPM) in an evolutionary framework. We model an economy where a heterogeneous population of long-lived agents invest their wealth according to different portfolio rules, and prove that traders who either “believe” in CAPM and use it as a rule of thumb, or are endowed with genuine mean-variance preferences, under some very weak conditions, vanish in the long run.We show that a sufficient condition to drive CAPM or mean-variance traders’ wealth shares to zero is that an investor endowed with a logarithmic utility function enters the market. |
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Keywords: | Evolution Market selection Wealth dynamics Portfolio rules CAPM |
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