This paper develops a tractable dynamic model of competition between two risk-averse portfolio managers who attempt to outperform each other by trading in different stocks, reflecting asset specialization. We characterize explicitly the unique Nash equilibrium portfolio policies, and show that a...

We consider an exchange economy with heterogeneous agents and multiple assets and investigate the coupled dynamics of assets' prices and agents' wealth. We assume that agents have heterogeneous beliefs and invest on each asset a fraction of wealth proportional to its expected dividends. Our main...

We consider a market economy where two rational agents are able to learn the distribution of future events. In this context, we study whether moving away from the standard Bayesian belief updating, in the sense of under-reaction to some degree to new information, may be strategically convenient...

We consider an exchange economy with heterogeneous agents and multiple assets and investigate the coupled dynamics of assets' prices and agents' wealth. We assume that agents have heterogeneous beliefs and invest on each asset a fraction of wealth proportional to its expected dividends. Our main...

The behavioural finance literature attributes the persistent market misvaluation observed in real data to the presence of deviations from rational thinking of the actors involved. Cognitive biases and the use of simple heuristics can be described using expected utility maximising agents that...

We consider an optimal execution problem where an agent holds a position in an asset which must be liquidated (using limit orders) before a terminal horizon. Beginning with a standard model for the trading dynamics, we analyse how the acknowledgement of model misspecification affects the agent's...

In classical perfect and complete markets prices form a Martingale and stock returns (or equivalently, successive price changes) are serially uncorrelated. However, there is evidence that stock returns are serially correlated in both the short and the long-term; this has been construed as a...

In classical perfect and complete markets, prices form a Martingale and stock returns (or equivalently, successive price changes) are serially uncorrelated. However, there is considerable evidence in the finance literature showing that stock returns are serially correlated both in the short and...

This paper analyzes a dynamic stochastic equilibrium model of an asset market based on behavioral and evolutionary principles. The core of the model is a non-traditional game-theoretic framework combining elements of stochastic dynamic games and evolutionary game theory. Its key characteristic...

Evolutionary Finance focuses on questions of "survival and extinction" of investment strategies (portfolio rules) in the market selection process. It analyzes stochastic dynamics of financial markets in which asset prices are determined endogenously by a short-run equilibrium between supply and...