Behavioral heterogeneity in the CAPM with evolutionary dynamics

Thorsten Hens () and Fatemeh Naebi
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Thorsten Hens: University of Zurich
Fatemeh Naebi: Allameh Tabataba’i University

Journal of Evolutionary Economics, 2022, vol. 32, issue 5, No 5, 1499-1521

Abstract: 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.

Keywords: CAPM; Heterogeneous Behavior; Evolutionary Dynamics; Fundamental Beta (search for similar items in EconPapers)
JEL-codes: D53 G1 G4 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00191-022-00786-3

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