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Behavioral heterogeneity in the CAPM with evolutionary dynamics


Hens, Thorsten; Naebi, Fatemeh (2022). Behavioral heterogeneity in the CAPM with evolutionary dynamics. Journal of Evolutionary Economics, 32:1499-1521.

Abstract

The paper shows how the standard two-period CAPM with exogenous wealth and exogenous returns can be extended inter-temporally by including the evolution of wealth from the Evolutionary Finance model of Evstigneev et al., J Math Finance 12:329–339, (2011). The missing link between the two models is the CAPM with heterogeneous behavior derived by Hens and Naebi, J Appl Econ Lett 28:501–507, (2020). The paper delivers theoretical and empirical results for behavioral heterogeneity in the CAPM with evolutionary dynamics. The market selection process results in a beta based on fundamentals to which the standard beta tends to converge asymptotically. The results of our model are confirmed by data from the DJIA.

Abstract

The paper shows how the standard two-period CAPM with exogenous wealth and exogenous returns can be extended inter-temporally by including the evolution of wealth from the Evolutionary Finance model of Evstigneev et al., J Math Finance 12:329–339, (2011). The missing link between the two models is the CAPM with heterogeneous behavior derived by Hens and Naebi, J Appl Econ Lett 28:501–507, (2020). The paper delivers theoretical and empirical results for behavioral heterogeneity in the CAPM with evolutionary dynamics. The market selection process results in a beta based on fundamentals to which the standard beta tends to converge asymptotically. The results of our model are confirmed by data from the DJIA.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > General Business, Management and Accounting
Social Sciences & Humanities > Economics and Econometrics
Scope:Discipline-based scholarship (basic research)
Language:English
Date:2022
Deposited On:02 Dec 2022 06:10
Last Modified:28 Apr 2024 01:39
Publisher:Springer
ISSN:0936-9937
OA Status:Hybrid
Free access at:Official URL. An embargo period may apply.
Publisher DOI:https://doi.org/10.1007/s00191-022-00786-3
Official URL:https://doi.org/10.1007/s00191-022-00786-3
Other Identification Number:merlin-id:22862
  • Content: Published Version
  • Licence: Creative Commons: Attribution 4.0 International (CC BY 4.0)