2000/09/28 by Guido Caldarelli, G. Caldarelli, Marina Piccioni +6
Economics, Econometrics and Finance · Physics and Astronomy · #Complex Systems and Time Series Analysis #Economic theories and models #FOS: Economics and business #FOS: Physical sciences #Financial Markets and Investment Strategies #General Finance (q-fin.GN) #Soft Condensed Matter (cond-mat.soft) #Statistical Mechanics (cond-mat.stat-mech) #cond-mat.soft #cond-mat.stat-mech #q-fin.GN
paper · pdf · doi:10.48550/arxiv.cond-mat/0009437
18 pages, 2 eps figures, presented at CEF2000 Barcelona, Spain
arxiv created 2000/09/28 · openalex publication_date 2000/09/28 · arxiv updated 2009/11/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In this paper we test computationally the performance of CAPM in an evolutionary setting. In particular we study the stability of wealth distribution in a financial market where some traders invest as prescribed by CAPM and others behave according to different portfolio rules. Our study is motivated by recent analytical results that show that, whenever a logarithmic utility maximiser enters the market, traders who either ``believe'' in CAPM and use it as a rule of thumb for their portfolio decisions, or are endowed with genuine mean-variance preferences, vanish in the long run. Our analysis provides further insights and extends these results. We simulate a sequence of trades in a financial market and: first, we address the issue of how long is the long run in different parametric settings; second, we study the effect of heterogeneous savings behaviour on asymptotic wealth shares. We find that CAPM is particularly ``unfit'' for highly risky environments.