Competitive Nash Equilibria and Two Period Fund Separation

Thorsten Hens, Stefan Reimann and Bodo Vogt

No 172, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: We suggest a simple asset market model in which we analyze competitive and strategic behavior simultaneously. If for competitive behavior two-fund separation holds across periods then it also holds for strategic behavior. In this case the relative prices of the assets do not depend on whether agents behave strategically or competitively. Those agents acting strategically will however invest less in the common mutual fund. Constant relative risk aversion and absence of aggregate risk are shown to be two alternative sufficient conditions for two-period fund separation. With derivatives further strategic aspects arise and strategic behavior is distinct from competitive behavior even for those utility functions leading to two-fund separation.

Keywords: strategic behavior; competitive behavior; two-fund-separation; CAPM. (search for similar items in EconPapers)
JEL-codes: C72 D83 G11 (search for similar items in EconPapers)
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Citations: View citations in EconPapers (10)

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