As early as 1934 Graham and Dodd conjectured that excess returns from value investment originate from a tendency of markets to converge towards fundamental values. This paper confirms their insights theoretically within the evolutionary finance model of Evstigneev, Hens, and Schenk-Hopp (2006)...

In this paper we propose a new tâtonnement process of short-period equilibria with rational expectations: current period prices move proportionally to current period excess demand while future prices are formed according to the perfect foresight hypothesis. It is shown that this process is...

In this Paper we propose a concept of stability for intertemporal equilibria with rational expectations: current period prices move proportionally to current period excess demand while future prices are formed according to the perfect foresight hypothesis. It is shown that this process is...

We consider a dynamic general equilibrium model with incomplete markets in which we derive conditions for separating the savings decision from the asset allocation decision. It is shown that with logarithmic utility functions this separation holds for any heterogeneity of discount factors while...

The paper examines a game-theoretic evolutionary model of anasset market with endogenous equilibrium asset prices. Assetspay dividends that are partially consumed and partially rein-vested. The investors use general, adaptive strategies (portfo-lio rules), distributing their wealth between...

This paper studies an application of a Darwinian theory of portfolioselection to stocks listed in the Dow Jones Industrial Average (DJIA).We analyze numerically the long-run outcome of the competition offix-mix portfolio rules in a stock market with actual DJIA dividends.In the model seemingly...

There is an extensive literature claiming that it is often difficultto make use of arbitrage opportunities in financial markets. Thispaper provides a new reason why existing arbitrage opportunitiesmight not be seized. We consider a world with short-lived securities,no short-selling constraints...

Markowitz and Sharpe won the Nobel Prize in Economics more than a decade ago for the development of Mean-Variance analysis and the Capital Asset Pricing Model (CAPM). In the year 2002, Kahneman won the Nobel Prize in Economics for the development of Prospect Theory. Can these two apparently...

Under the assumption of normally distributed returns, we analyzewhether the Cumulative Prospect Theory of Tversky and Kahneman (1992)is consistent with the Capital Asset Pricing Model. We find that in everyfinancial market equilibrium the Security Market Line Theorem holds.However, under the...

This paper shows that a stock market is evolutionary stable if andonly if stocks are evaluated by expected relative dividends. Any othermarket can be invaded by portfolio rules that will gain market wealthand hence change the valuation. In the model the valuation of assetsis given by the wealth...