The Asset Market Game

Carlos Alós-Ferrer and Ana Ania

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: This paper models asset markets as a game where assets pay according to an arbitrary payoff matrix, investors decide on fractions of wealth to allocate to each asset, and prices result from market clearing. The only pure-strategy Nash equilibrium is to split wealth proportionally to the assets' expected returns, which can be interpreted as investing according to the fundamentals. Further, the equilibrium is evolutionarily stable in the sense of Schaffer (1988). We also study the stability properties of the equilibrium in an evolutionary dynamics where wealth flows with higher probability into those strategies that obtain higher realized payoffs.

JEL-codes: C72 D83 G11 (search for similar items in EconPapers)
Date: 2003-12
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Journal Article: The asset market game (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:vie:viennp:vie0320

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