FIXED-MIX RULES IN AN EVOLUTIONARY MARKET USING A FACTOR MODEL FOR DIVIDENDS

Konstantinos Mavroudis () and Craig A. Nolder ()
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Konstantinos Mavroudis: Analytics and Quantitative Modelling Group, Risk and Regulation, Deloitte LLP, Hill House, 1 Little New Street, London, EC4A 3TR, UK
Craig A. Nolder: Department of Mathematics, Florida State University, Tallahassee, Florida 32306-4510, USA

International Journal of Theoretical and Applied Finance (IJTAF), 2011, vol. 14, issue 08, 1247-1277

Abstract: In this paper we explore the impact of various constant-proportions investment strategies (or Fixed-Mix Rules) in an economic evolutionary market. Dividends are generated according to a new Dividend Factor Model. Furthermore, dividends are estimated and calibrated from data using Principal Component Analysis. Moreover, we perform simulations to study the long-run outcome of an evolutionary competition with several well diversified constant-proportions strategies, among them some innovative strategies. We present and compare a variety of simulations with dividends being artificially generated according to our Dividend Model. Our simulation results are important for both theoretical and practical reasons. In theoretical terms we extend the existing numerical studies with the estimation and application of a more realistic model for the dividend process. In practical terms we suggest new constant-proportions strategies that could be superior for investors at least in the short run.

Keywords: Dividend factor model; principal components analysis; constant-proportions investment strategies; evolutionary portfolio theory; excess volatility (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S021902491100684X

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