Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89485
Authors: 
Bottazzi, Giulio
Dindo, Pietro
Year of Publication: 
2010
Series/Report no.: 
LEM Working Paper Series 2010/20
Abstract: 
In a complete market for short-lived assets, we investigate long run wealth-driven selection on a general class of investment rules that depend on endogenously determined current and past prices. We find that market instability, leading to asset mis-pricing and informational efficiencies, is a common phenomenon and is due to two different mechanisms. First, conditioning investment decisions on asset prices implies that dominance of an investment rule on others, as measured by the relative entropy, can be different at different prevailing prices thus reducing the global selective capability of the market. Second, the feedback existing between past realized prices and current investment decisions can lead to a form of deterministic overshooting. By investigating the random dynamical system that describes the price and wealth dynamics, we are able to derive general conditions for the occurrence of each type of market instability and the emergence of informational inefficiencies.
Subjects: 
Market Selection
Informational Efficiency
Evolutionary Finance
Price Feedbacks
Asset Pricing
JEL: 
D50
D80
G11
G12
Document Type: 
Working Paper

Files in This Item:
File
Size
290.34 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.