Seminario interdisciplinare
ore
14:30
presso MatemateS
Abstract<br/>
In a repeated market for short-lived assets, we investigate long run wealth-driven selection on the general class of investment rules that depend on endogenously
determined current and past prices. We study the random dynamical system that
describes the price and wealth dynamics and characterize local stability of long-run
market equilibria. Instability, leading to asset mispricing and informational
inefficiencies, turns out to be a common phenomenon generated by two different
mechanisms. Firstly, 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. Secondly, the feedback existing between past realized prices and
current investment decisions can lead to a form of deterministic overshooting.