Evolutionary finance for multi-asset investors

Michael Schnetzer and Thorsten Hens
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Michael Schnetzer: Sammelstiftung Vita
Thorsten Hens: University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute

No 22-05, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Standard strategic asset allocation procedures usually neglect market interaction. However, returns are not generated in a vacuum but are the result of the market's price discovery mechanism which is driven by investors' investment strategies. Evolutionary finance accounts for this and endogenizes asset prices. This paper develops a multi-asset evolutionary finance model. Requiring little more than dividend and interest rate data, it facilitates an interesting glimpse into the inner workings of financial markets and provides a valuable guide to this class of models. While traditional mean/variance optimization is static and concerned with finding the optimal asset allocation, evolutionary portfolio theory is dynamic and its focus is on finding the optimal investment strategy. This paper shows that yield-based strategies generate asset allocations that outperform competing alternatives. Therefore, strategic asset allocation approaches that rely on such an economic foundation are evolutionarily advantageous for multi-asset investors.

Keywords: Evolutionary finance; strategic asset allocation; multi-asset. (search for similar items in EconPapers)
JEL-codes: G10 G11 G17 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2022-01
New Economics Papers: this item is included in nep-evo, nep-fmk, nep-hme and nep-isf
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2205

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