Wealth-driven competition in a speculative financial market: examples with maximizing agents

Abstract

This paper demonstrates how both the quantitative and qualitative results of a general, analytically tractable asset-pricing model in which heterogeneous agents behave consistently with a constant relative risk-aversion assumption can be applied to the special case of optimizing behaviour. The analysis of the asymptotic properties of the market is performed using a geometric approach that allows the visualization of all possible equilibria by means of a simple one-dimensional Equilibrium Market Curve. The case of linear (particularly, mean-variance) investment functions is thoroughly analysed. This analysis highlights the features that are specific to linear investment functions. As a consequence, some previous contributions of the agent-based literature are generalized.Asset pricing model, CRRA framework, Equilibrium market curve, Expected utility maximization, Mean-variance optimization, Linear investment functions,