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Evolution And Market Behavior With Endogenous Investment Rules

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Executive Summary

In a repeated market for short-lived assets, the authors investigate long run wealth-driven selection on the general class of investment rules that depend on endogenously determined current and past prices. They study the random dynamical system that describes the price and wealth dynamics and characterize local stability of long-run market equilibria. Their results show that instability of these long-run market equilibria is a common phenomenon that might lead to asset mis-pricing and informational inefficiency.

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