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Market Selection and Survival of Investment Strategies


Amir, Rabah; Evstigneev, Igor V; Hens, Thorsten; Schenk-Hoppé, Klaus Reiner (2001). Market Selection and Survival of Investment Strategies. Working paper series / Institute for Empirical Research in Economics No. 91, University of Zurich.

Abstract

The paper analyzes the process of market selection of investment strategies in an incomplete asset market. The payoffs of the as-sets depend on random factors described in terms of a discrete-time Markov process. Market participants make dynamic investment de-cisions 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 in-vestment in the market portfolio). This assumption turns out to be essentially necessary for the conclusion.

Abstract

The paper analyzes the process of market selection of investment strategies in an incomplete asset market. The payoffs of the as-sets depend on random factors described in terms of a discrete-time Markov process. Market participants make dynamic investment de-cisions 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 in-vestment in the market portfolio). This assumption turns out to be essentially necessary for the conclusion.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:October 2001
Deposited On:29 Nov 2011 21:26
Last Modified:07 Dec 2017 10:06
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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