Survival of the Fittest on Wall Street

Thorsten Hens and Klaus Schenk-Hoppé
Additional contact information
Thorsten Hens: University of Zurich

No 04-03, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper studies an application of a Darwinian theory of portfolio selection to stocks listed in the Dow Jones Industrial Average (DJIA). We analyze numerically the long-run outcome of the competition of fix-mix portfolio rules in a stock market with actual DJIA dividends. In the model seemingly rational strategies can do very poorly against seemingly irrational strategies. Moreover, the interaction of strategies can lead to stochastic time series of asset prices that do not converge. The simulations also show that the evolutionary portfolio rule discovered in Hens and Schenk-Hopp´e (2004) will eventually hold total market wealth in competition with fix-mix portfolio rules derived from mean-variance optimization, maximum growth theory and behavioral finance. According to this evolutionary rule, portfolio weights should be proportional to the expected relative dividends of the assets. As an implication asset prices converge to expected relative dividends.

Keywords: Evolutionary Finance; Behavioral Finance; CAPM; Fix-Mix Portfolio Rules; Growth Optimal Portfolio (search for similar items in EconPapers)
JEL-codes: D52 D81 D83 G11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2004-02
New Economics Papers: this item is included in nep-cbe, nep-cmp, nep-fmk and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.econ.ku.dk/english/research/publications/wp/2004/0403.pdf/ (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: https://EconPapers.repec.org/RePEc:kud:kuiedp:0403

Access Statistics for this paper

More papers in Discussion Papers from University of Copenhagen. Department of Economics Oester Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().