Economics at your fingertips  

Forward utility and market adjustments in relative investment-consumption games of many players

Goncalo dos Reis and Vadim Platonov

Papers from

Abstract: We study a portfolio management problem featuring many-player and mean field competition, investment and consumption, and relative performance concerns under the forward performance processes (FPP) framework. We focus on agents using power (CRRA) type FPPs for their investment-consumption optimization problem under a common noise Merton market model. We solve both the many-player and mean field game providing closed-form expressions for the solutions where the limit of the former yields the latter. In our case, the FPP framework yields a continuum of solutions for the consumption component as indexed to a market parameter we coin "market-risk relative consumption preference". The parameter permits the agent to set a preference for their consumption going forward in time that, in the competition case, reflects a common market behaviour. We show the FPP framework, under both competition and no-competition, allows the agent to disentangle her risk-tolerance and elasticity of intertemporal substitution (EIS) just like Epstein-Zin preferences under recursive utility framework and unlike the classical utility theory one. This, in turn, allows a finer analysis on the agent's consumption "income" and "substitution" regimes, and, of independent interest, motivates a new strand of economics research on EIS under the FPP framework. We find that competition rescales the agent's perception of consumption in a non-trivial manner. We provide numerical illustrations of our results.

Date: 2020-12, Revised 2022-03
New Economics Papers: this item is included in nep-gth and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Papers from
Bibliographic data for series maintained by arXiv administrators ().

Page updated 2022-03-26
Handle: RePEc:arx:papers:2012.01235