Market selection with learning and catching up with the Joneses
Portfolio Management
2012-01-17 v3 Optimization and Control
Abstract
We study the market selection hypothesis in complete financial markets, populated by heterogeneous agents. We allow for a rich structure of heterogeneity: individuals may differ in their beliefs concerning the economy, information and learning mechanism, risk aversion, impatience and 'catching up with Joneses' preferences. We develop new techniques for studying the long-run behavior of such economies, based on the Strassen's functional law of iterated logarithm. In particular, we explicitly determine an agent's survival index and show how the latter depends on the agent's characteristics. We use these results to study the long-run behavior of the equilibrium interest rate and the market price of risk.
Keywords
Cite
@article{arxiv.1106.3025,
title = {Market selection with learning and catching up with the Joneses},
author = {Roman Muraviev},
journal= {arXiv preprint arXiv:1106.3025},
year = {2012}
}
Comments
To appear in Finance and Stochastics