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A numerical study on the evolution of portfolio rules

Caldarelli, Guido and Piccioni, Marina and Sciubba, Emanuela A numerical study on the evolution of portfolio rules. In: Genetic algorithms and genetic programming in computational finance. Springer, pp. 379-395. ISBN 978-1-4615-0835-9 (2002)

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In this paper we test computationally the performance of CAPM in an evolutionary setting. In particular we study the stability of distribution of wealth in a financial market where some traders invest as prescribed by CAPM and others behave according to different portfolio rules. Our study is motivated by recent analytical results that show that, whenever a logarithmic utility maximiser enters the market, CAPM traders vanish in the long run. Our analysis provides further insights and extends these results. We simulate a sequence of trades in a financial market and: first, we address the issue of how long is the long run in different parametric settings; second, we study the effect of heterogeneous savings behaviour on asymptotic wealth shares. We find that CAPM is particularly “unfit” for highly risky environments.

Item Type: Book Section
Identification Number: 10.1007/978-1-4615-0835-9_18
Additional Information: Selection of papers presented at the 6th International Conference of the Society for Computational Economics on Computing in Economics and Finance, which was held at Universität Pompeu Fabra, Barcelona, Catalonia, Spain on July 6-8, 2000
Uncontrolled Keywords: Evolution; Portfolio Rules; CAPM; Kelly Criterion
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics
Research Area: Economics and Institutional Change
Depositing User: Ms T. Iannizzi
Date Deposited: 27 Feb 2012 11:35
Last Modified: 26 Jun 2014 11:17
URI: http://eprints.imtlucca.it/id/eprint/1193

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