Wealth-Driven Competition in a Speculative Financial Market: Examples With Maximizing Agents

Abstract

This paper demonstrates how both 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 cases of optimizing behavior. The analysis of the asymptotic properties of the market is performed using a geometric approach which 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 analyzed. This analysis highlights the features which are specific to the linear investment functions. As a consequence, some previous contributions of the agent-based literature are generalized.