Research Article
BibTex RIS Cite
Year 2024, Volume: 8 Issue: 1, 87 - 115, 28.03.2024

Abstract

References

  • Alos-Ferrer, C. and Ania, A.B. (2005). The asset market game. Journal of Mathematical Economics, 41, 67– 90.
  • Amir, R., Evstigneev, I.V., Hens, T. And Schenk-Hoppé, K.R. (2005). Market selection and survival of investment strategies. Journal of Mathematical Economics, 41, 105–122.
  • Boz, E., and Mendoza, E. G. (2014). Financial innovation, the discovery of risk, and the U.S. credit crisis. Journal of Monetary Economics, 62, 1-22.
  • Bowles, S. (2006). Microeconomics: Behavior, institutions, and evolution. Princeton: Princeton University Press.
  • Brock, W.A., Hommes, C. H. and Wagener, F. O. O. (2005). Evolutionary Dynamics in markets with many trader types, Journal of Mathematical Economics, 41(1-2), 7-42.
  • Cheng, L., Columba, F., Costa, A., Kongsamut, P., Otani, A., Saiyid, M., Wezel, T. and Wu, X. (2011). Macroprudential Policy: What Instruments and How to Use Them? Lessons From Country Experiences, IMF Working Paper , No. WP/11/238.
  • Chiarella, C., Dieci, R. and Gardini, L. (2006). Asset price and wealth dy-namics in a financial market with heterogeneous agents. Journal of Economic Dynamics and Control, 30(9-10), 1755–1786.
  • Cowen, T. and High, J. (1988). Time, bounded utility, and the St. Petersburg Paradox. Theory and Decision, 25, 219-233.
  • De Long, B., Shleifer, A., Summers, L. H. and Waldmann, R. J. (1990). Noise Trader Risk in Financial Markets, The Journal of Political Economy, 98(4), 703-738.
  • Evstigneev, I.V., Hens, T. and Schenk-Hoppé, K.R. (2002). Market selection of financial trading strategies: global stability. Mathematical Finance, 12, 329–339.
  • Evstigneev, I. V., T. Hens. and K. R. Schenk-Hope. (2006). Evolutionary stable stock markets, Economic Theory, 27, 449–468.
  • Fama, E. F. (1965). The Behavior of Stock-Market Prices, The Journal of Business, 38(1), 34-105.
  • Fishburn, P. (1968). Utility Theory, Management Science, 14(5), 335-378.
  • Friedman, M. (1953). Essays in Positive Economics, Chicago: The University of Chicago Press.
  • Gordon, M. J. (1959). Dividends, Earnings and Stock Prises. The Review of Economics and Statistics, 41(2), 99-105.
  • Hens, T. and Schenk-Hoppé, K.R. (2005a). Evolutionary finance: Introduction to the special issue. Journal of Mathematical Economics, 41(1), 1-5.
  • Hens, T. and Schenk-Hoppé, K.R. (2005b). Evolutionary stability of portfolio rules in incomplete markets. Journal of Mathematical Economics, 41, 43–66.
  • Hicks, J. R. (1939). Value and Capital: An Inquiry Into Some Fundamental Principles of Economic Theory. Great Britain: Oxford Clarendon Press (Second Edition : 1946).
  • Hirshleifer, D., Subrahmanyam, A., and Titman, S. (2006). Feedbck and the success of irrational investors, Journal of Financial Economics, 81(2), 311-338.
  • Jianhua, Y., Danyang, L. and Yaru, C. (2020). Investor Irratinal Selection Bias In Stock Market Based on Cognitive Psychology: Evindece From Herding Behaviour, Revista Argentina de Clinica Psicologica, 29(1), 90.
  • Kane, E. J. (1984). Microeconomic Evidence on the Composition of Effective Household Savingsduring the 1960s and 1970s. NBER Working Paper, No. w1349, Available at SSRN: https://ssrn.com/ abstract=969309
  • Kelly, J.R. (1965). A New Interpretation of Infarmation Rate. Bell Technical Journal, 35(4), 917-926.
  • Mamun, A., Syeed, A. and Yasmeen, F. (2015). Are investors rational, irrational or normal? Journal of Economic & Financial Studies, 03(04), 1-15.
  • Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77-91.
  • Mehra, R. and Prescott, E. C. (1985). The Equity Premium, Journal of Monetary Economics, 15, 145-161.
  • Mushinada, V.N.C. (2020). Are individual investors irrational or adaptive to market dynamics? Journal of Behavioral and Experimental Finance, 25, 1-9.
  • Norstad, J. (2011). An Introduction to Utility Theory, https://jahandideh.iut.ac.ir/sites/jahandideh.iut.ac.ir/ files/files_course/look_in_utility-theory.pdf
  • Rubio, M. and Gallego, J.C. (2016). The new financial regulation in Basel III and monetary policy: A macroprudential approach, Journal of Financial Stability, 26, 294-305.
  • Shiller, R. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Divident? The American Economic Review, 71(3), 421-436.
  • Shleifer, A. (2000). Inefficient markets: an introduction to behavioral finance. UK : Oxford University Press.
  • Williams, J. B. (1997). The Theory of Investment Value. Fraser Publishing Company. ISBN: 978-0-87034- 1267.

Examining Investment Strategies With Evolutionary Game Theory

Year 2024, Volume: 8 Issue: 1, 87 - 115, 28.03.2024

Abstract

This study provides a comprehensive analysis of the investment strategies used in stock markets by utilizing evolutionary game theory. The main objective is to investigate the conditions necessary for achieving an evolutionary stable equilibrium, which is crucial for a successful investment strategy and a rational market process. To achieve a stable investment strategy, investors must focus on returns and be wary of yield differences. Yet, empirical observation of this situation can be challenging. Therefore, evolutionary theory is selected as the ideal tool to model emotional states and non-rational behaviors, such as reciprocity, altruism, and selfishness. The study is divided into three parts. The first part presents a literature review on the modeling of investment strategies. In the second part, investment strategies are modeled using evolutionary game theory. Finally, in the last part, a behavioral dimension is added to the model, revealing the difficulty of rational preferences and evolutionary stable balances in the presence of human behavioral preferences. We emphasize the importance of a stable investment strategy dominating the market to achieve an equilibrium state. The study highlights the challenge of achieving rational preferences and evolutionary stable balances, given the behavioral dimension of human preferences.

References

  • Alos-Ferrer, C. and Ania, A.B. (2005). The asset market game. Journal of Mathematical Economics, 41, 67– 90.
  • Amir, R., Evstigneev, I.V., Hens, T. And Schenk-Hoppé, K.R. (2005). Market selection and survival of investment strategies. Journal of Mathematical Economics, 41, 105–122.
  • Boz, E., and Mendoza, E. G. (2014). Financial innovation, the discovery of risk, and the U.S. credit crisis. Journal of Monetary Economics, 62, 1-22.
  • Bowles, S. (2006). Microeconomics: Behavior, institutions, and evolution. Princeton: Princeton University Press.
  • Brock, W.A., Hommes, C. H. and Wagener, F. O. O. (2005). Evolutionary Dynamics in markets with many trader types, Journal of Mathematical Economics, 41(1-2), 7-42.
  • Cheng, L., Columba, F., Costa, A., Kongsamut, P., Otani, A., Saiyid, M., Wezel, T. and Wu, X. (2011). Macroprudential Policy: What Instruments and How to Use Them? Lessons From Country Experiences, IMF Working Paper , No. WP/11/238.
  • Chiarella, C., Dieci, R. and Gardini, L. (2006). Asset price and wealth dy-namics in a financial market with heterogeneous agents. Journal of Economic Dynamics and Control, 30(9-10), 1755–1786.
  • Cowen, T. and High, J. (1988). Time, bounded utility, and the St. Petersburg Paradox. Theory and Decision, 25, 219-233.
  • De Long, B., Shleifer, A., Summers, L. H. and Waldmann, R. J. (1990). Noise Trader Risk in Financial Markets, The Journal of Political Economy, 98(4), 703-738.
  • Evstigneev, I.V., Hens, T. and Schenk-Hoppé, K.R. (2002). Market selection of financial trading strategies: global stability. Mathematical Finance, 12, 329–339.
  • Evstigneev, I. V., T. Hens. and K. R. Schenk-Hope. (2006). Evolutionary stable stock markets, Economic Theory, 27, 449–468.
  • Fama, E. F. (1965). The Behavior of Stock-Market Prices, The Journal of Business, 38(1), 34-105.
  • Fishburn, P. (1968). Utility Theory, Management Science, 14(5), 335-378.
  • Friedman, M. (1953). Essays in Positive Economics, Chicago: The University of Chicago Press.
  • Gordon, M. J. (1959). Dividends, Earnings and Stock Prises. The Review of Economics and Statistics, 41(2), 99-105.
  • Hens, T. and Schenk-Hoppé, K.R. (2005a). Evolutionary finance: Introduction to the special issue. Journal of Mathematical Economics, 41(1), 1-5.
  • Hens, T. and Schenk-Hoppé, K.R. (2005b). Evolutionary stability of portfolio rules in incomplete markets. Journal of Mathematical Economics, 41, 43–66.
  • Hicks, J. R. (1939). Value and Capital: An Inquiry Into Some Fundamental Principles of Economic Theory. Great Britain: Oxford Clarendon Press (Second Edition : 1946).
  • Hirshleifer, D., Subrahmanyam, A., and Titman, S. (2006). Feedbck and the success of irrational investors, Journal of Financial Economics, 81(2), 311-338.
  • Jianhua, Y., Danyang, L. and Yaru, C. (2020). Investor Irratinal Selection Bias In Stock Market Based on Cognitive Psychology: Evindece From Herding Behaviour, Revista Argentina de Clinica Psicologica, 29(1), 90.
  • Kane, E. J. (1984). Microeconomic Evidence on the Composition of Effective Household Savingsduring the 1960s and 1970s. NBER Working Paper, No. w1349, Available at SSRN: https://ssrn.com/ abstract=969309
  • Kelly, J.R. (1965). A New Interpretation of Infarmation Rate. Bell Technical Journal, 35(4), 917-926.
  • Mamun, A., Syeed, A. and Yasmeen, F. (2015). Are investors rational, irrational or normal? Journal of Economic & Financial Studies, 03(04), 1-15.
  • Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77-91.
  • Mehra, R. and Prescott, E. C. (1985). The Equity Premium, Journal of Monetary Economics, 15, 145-161.
  • Mushinada, V.N.C. (2020). Are individual investors irrational or adaptive to market dynamics? Journal of Behavioral and Experimental Finance, 25, 1-9.
  • Norstad, J. (2011). An Introduction to Utility Theory, https://jahandideh.iut.ac.ir/sites/jahandideh.iut.ac.ir/ files/files_course/look_in_utility-theory.pdf
  • Rubio, M. and Gallego, J.C. (2016). The new financial regulation in Basel III and monetary policy: A macroprudential approach, Journal of Financial Stability, 26, 294-305.
  • Shiller, R. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Divident? The American Economic Review, 71(3), 421-436.
  • Shleifer, A. (2000). Inefficient markets: an introduction to behavioral finance. UK : Oxford University Press.
  • Williams, J. B. (1997). The Theory of Investment Value. Fraser Publishing Company. ISBN: 978-0-87034- 1267.
There are 31 citations in total.

Details

Primary Language English
Subjects Microeconomic Theory
Journal Section Makaleler
Authors

Aras Yolusever 0000-0001-9810-2571

Burak Ünveren 0000-0002-4287-6663

Ercan Eren 0000-0003-4513-278X

Early Pub Date March 21, 2024
Publication Date March 28, 2024
Submission Date January 15, 2024
Acceptance Date March 12, 2024
Published in Issue Year 2024 Volume: 8 Issue: 1

Cite

APA Yolusever, A., Ünveren, B., & Eren, E. (2024). Examining Investment Strategies With Evolutionary Game Theory. Journal of Research in Economics, 8(1), 87-115.