Evolution and stock markets

A theoretical problem about stock markets is being investigated by means of a computer simulation method which is similar to biological evolution. Among economists it is widely believed that prices on stock markets represent the 'true' (the fundamental) value of the traded assets. This belief is based on the idea that a limited number of informed investors trades the asset in a way such that the market price converges towards the fundamental values and that their private information is being leaked via the market price. Hence, the market price will-sooner or later-be an appropriate asset valuation, even if there are many uninformed investors. It might well be that market prices often represent equilibria of wrong beliefs about the other's information, rather than the fundamental value. Consequently, fundamentalists could be worse off than other types of investors. Unfortunately, it is almost impossible to distinguish between these theories by observing real markets because even the researcher himself never knows the assets' fundamental values, nor does he know the investors' individual states of information. Therefore a Monte Carlo computer simulation is conducted which simulates the behavior of different investment strategies on an artificial asset market in order to find out if non-fundamental valuations can be stable. The simulation method is based on the principles of biological evolution.<>