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The asset market game

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’ exp...

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Published in:	Journal of mathematical economics 2005-02, Vol.41 (1), p.67-90
Main Authors:	Alós-Ferrer, Carlos, Ania, Ana B.
Format:	Article
Language:	English
Subjects:	Asset markets Assets Economic efficiency Economic models Equilibrium Evolutionary economics Evolutionary stability Game theory Market efficiency Market equilibrium Market theory Mathematical methods Portfolio choice Portfolio selection
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creator	Alós-Ferrer, Carlos Ania, Ana B.
description	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.
doi_str_mv	10.1016/j.jmateco.2004.02.005
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source	International Bibliography of the Social Sciences (IBSS); ScienceDirect Freedom Collection; ScienceDirect: Economics, Econometrics & Finance Backfile; Backfile Package - Mathematics (Legacy) [YMT]
subjects	Asset markets Assets Economic efficiency Economic models Equilibrium Evolutionary economics Evolutionary stability Game theory Market efficiency Market equilibrium Market theory Mathematical methods Portfolio choice Portfolio selection
title	The asset market game
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