2005/27  LEM Working Paper Series  
WealthDriven Competition in a Speculative Financial Market: Examples with Maximizing Agents 

Mikhail Anufriev 

Keywords  
Asset Pricing Model, CRRA Framework, Equilibrium Market Line, Rational Choice, Expected Utility Maximization,
MeanVariance Optimization, Linear Investment Functions


JEL Classifications  
C62, D84, G12


Abstract  
This paper demonstrates how both quantitative and qualitative results of
general, analytically tractable assetpricing model in which heterogeneous
agents behave consistently with a constant relative risk aversion
assumption can be applied to the particular case of "linear" investment
choices. In this way it is shown how the framework developed in Anufriev
and Bottazzi (2005) can be used inside the classical setting with demand
derived from utility maximization. Consequently, some of the previous
contributions of the agentbased literature are generalized.
In the course of the analysis of asymptotic market behavior the main attention
is paid to a geometric approach which allows to visualize all possible
equilibria by means of a simple onedimensional curve referred as the
Equilibrium Market Line. The case of linear (particularly, meanvariance)
investment functions thoroughly analyzed in this paper allows to highlight
those features of the asymptotic dynamics which are common to all types of
the CRRAinvestment behavior and those which are specific for the
linear investment functions.


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