
This paper shows that a stock market is evolutionary stable if andnonly if stocks are evaluated by expected relative dividends. Any othernmarket can be invaded by portfolio rules that will gain market wealthnand hence change the valuation. In the model the valuation of assetsnis given by the wealth average of the portfolio rules in the market. Thenwealth dynamics is modelled as a random dynamical system. Necessary and sufficient conditions are derived for the evolutionary stabilitynof portfolio rules when (relative) dividend payoffs form a stationarynMarkov process. These local stability conditions lead to a unique evolutionary stable strategy according to which assets are evaluated bynexpected relative dividends.
Incomplete markets, 10003 Department of Finance, 2002 Economics and Econometrics, Imcomplete markets, evolutionary .nance,portfolio theory,incomplete markets, Finance etc., 330 Economics, Auctions, bargaining, bidding and selling, and other market models, Evolutionary finance, Portfolio theory, 10007 Department of Economics, IEW Institute for Empirical Research in Economics (former), evolutionary finance; portfolio theory; incomplete markets, Portfolio, jel: jel:D81, jel: jel:D52, jel: jel:G11
Incomplete markets, 10003 Department of Finance, 2002 Economics and Econometrics, Imcomplete markets, evolutionary .nance,portfolio theory,incomplete markets, Finance etc., 330 Economics, Auctions, bargaining, bidding and selling, and other market models, Evolutionary finance, Portfolio theory, 10007 Department of Economics, IEW Institute for Empirical Research in Economics (former), evolutionary finance; portfolio theory; incomplete markets, Portfolio, jel: jel:D81, jel: jel:D52, jel: jel:G11
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