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Title: Impact of strategy switching on wealth accumulation
Authors: Zhang, Yu
Huang, Weihong
Keywords: Social sciences::Economic theory
Issue Date: 2017
Source: Zhang, Y., & Huang, W. (2018). Impact of strategy switching on wealth accumulation. Journal of Evolutionary Economics, 28(4), 961-983. doi:10.1007/s00191-017-0543-3
Journal: Journal of Evolutionary Economics 
Abstract: Various investment strategies coexist in financial markets. Fluctuations in the profitability of strategies rationalize investors’ strategy switching behaviors. Under bounded rationality and limited information, such behavior is usually driven by comparing the past performance of different strategies. But at what pace should investors change their strategies? Does a frequent strategy switching lead to a higher wealth in the end? To answer these questions, a discrete dynamic heterogeneous agent model is proposed, in which agents follow heuristic rules and a market maker adjusts the price of a risky asset. Agents are classified by their propensity of strategy switching. It is found that agents with a higher propensity adopt the better strategy more often, but end up with less final wealth. This counter-intuitive phenomenon is caused by the inconsistency between short-run profit and long-run wealth accumulation.
ISSN: 0936-9937
DOI: 10.1007/s00191-017-0543-3
Rights: This is a post-peer-review, pre-copyedit version of an article published in Journal of Evolutionary Economics. The final authenticated version is available online at:
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:SSS Journal Articles

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