On non-ergodic asset prices (Q2464015)

This paper provides a rigorous analysis of the long-run behavior of market shares and asset prices in a dynamic Capital Asset Pricing Model (CAPM) in which the demands for multiple risky assets comes from a large set of consumers. Consumers do not invest directly in the financial market but select between two professional financial mediators who are characterized by their ability to rorecast future asset prices. The question is analyzed to what extent boundedly rational consumers are able to identify the mediator holding efficient portfolios by means of simple empirical performance measures which is either the empirical return or the Sharpe ratio asociated with her trading strategy. It is proved that the financial market dynamics is ergodic if the dependence of consumer investment decisions on the mediators' performances is sufficiently weak, and ergodicity breaks down if interactive complementarities become too powerful. While market shares and asset prices still converge, their asymptotics is random and depends on noise trader transactions. It is shown that convergence of market shares implies that the price process converges in law to some random equilibrium distribution.