Evolutionary Portfolios Through the Small World Network

FSI Working Paper No. 5

25 Pages Posted: 16 Jul 2008

See all articles by Matjaz Steinbacher

Matjaz Steinbacher

Kiel Institute for the World Economy; University of Donja Gorica

Date Written: July, 15 2008

Abstract

In the paper, I apply the small world network approach to analyze how investors manage their portfolios. This is done by a discrete time version evolutionary game of two kinds of interacting agents (risk-dominant and risk-averse) and two kinds of assets (risk-free and risky asset). Agents manage their portfolios through learning from experiences of other agents in the game. The evolutionary process takes place on a social network through which investors compare their returns with the returns of their friends and neighbors, while upon that knowledge they decide which strategy to adopt. I simulate several different models and also analyze effects of investors' (ir)rationality or procedurally rationality to their decisionmaking.

Suggested Citation

Steinbacher, Matjaz, Evolutionary Portfolios Through the Small World Network (July, 15 2008). FSI Working Paper No. 5, Available at SSRN: https://ssrn.com/abstract=1160412 or http://dx.doi.org/10.2139/ssrn.1160412

Matjaz Steinbacher (Contact Author)

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

University of Donja Gorica ( email )

Podgorica, 81000
Montenegro

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