Evolutionary Finance for Multi-Asset Investors

Michael Schnetzer and Thorsten Hens

Financial Analysts Journal, 2022, vol. 78, issue 3, 115-127

Abstract: Standard strategic asset allocation procedures usually neglect market interaction. However, returns are not generated in a vacuum but the result of the market’s price discovery mechanism. 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 provides a valuable guide to this class of models. While traditional mean/variance optimization is concerned with finding the optimal allocation, evolutionary finance’s focus is on finding the optimal strategy. This paper shows that yield-based strategies outperform competing alternatives and are evolutionarily advantageous for multi-asset investors.

Date: 2022
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DOI: 10.1080/0015198X.2022.2071581

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