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Evolutionary Stable Stock Markets


Evstigneev, Igor V; Hens, Thorsten; Schenk-Hoppé, Klaus Reiner (2003). Evolutionary Stable Stock Markets. Working paper series / Institute for Empirical Research in Economics No. 170, University of Zurich.

Abstract

This paper shows that a stock market is evolutionary stable if andnonly if stocks are evaluated by expected relative dividends. Any othernmarket can be invaded by portfolio rules that will gain market wealthnand hence change the valuation. In the model the valuation of assetsnis given by the wealth average of the portfolio rules in the market. Thenwealth dynamics is modelled as a random dynamical system. Necessary and sufficient conditions are derived for the evolutionary stabilitynof portfolio rules when (relative) dividend payoffs form a stationarynMarkov process. These local stability conditions lead to a unique evolutionary stable strategy according to which assets are evaluated bynexpected relative dividends.

Abstract

This paper shows that a stock market is evolutionary stable if andnonly if stocks are evaluated by expected relative dividends. Any othernmarket can be invaded by portfolio rules that will gain market wealthnand hence change the valuation. In the model the valuation of assetsnis given by the wealth average of the portfolio rules in the market. Thenwealth dynamics is modelled as a random dynamical system. Necessary and sufficient conditions are derived for the evolutionary stabilitynof portfolio rules when (relative) dividend payoffs form a stationarynMarkov process. These local stability conditions lead to a unique evolutionary stable strategy according to which assets are evaluated bynexpected relative dividends.

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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 2003
Deposited On:29 Nov 2011 22:32
Last Modified:12 Aug 2017 12:54
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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