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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. Swiss Finance Institute Research Paper 22-06, University of Zurich.

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, Hens and Schenk-Hoppe (2011). The missing link between the two models is given by the CAPM with heterogeneous behavior derived by Hens and Naebi (2020). This paper delivers theoretical and empirical results for behavioral heterogeneity in the CAPM with evolutionary dynamics. As a result of the market selection process, we derive a beta based on fundamentals to which the standard beta tends to converge asymptotically. This is 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, Hens and Schenk-Hoppe (2011). The missing link between the two models is given by the CAPM with heterogeneous behavior derived by Hens and Naebi (2020). This paper delivers theoretical and empirical results for behavioral heterogeneity in the CAPM with evolutionary dynamics. As a result of the market selection process, we derive a beta based on fundamentals to which the standard beta tends to converge asymptotically. This is confirmed by data from the DJIA.

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Additional indexing

Item Type:Working Paper
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:10 January 2022
Deposited On:21 Sep 2023 10:39
Last Modified:27 May 2024 15:23
Series Name:Swiss Finance Institute Research Paper
OA Status:Closed
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.2139/ssrn.4003071
Other Identification Number:merlin-id:21833
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