Journal of Bioeconomics

, Volume 20, Issue 1, pp 29–48 | Cite as

Evolution, finance, and the population genetics of relative wealth

Article

Abstract

Attempts to use evolutionary ideas in finance have often neglected mathematical population genetics. Population genetics provides a natural approach to certain problems in finance that involve the relative wealth that accrues to competing investment strategies. In our model, competing investment strategies differ only in their allocation to a risky asset versus a riskless asset. Here we use results from the population genetics of natural selection to find the investment strategy that maximizes the expected increase in relative wealth. Though we focus on single-period analysis, some of our key findings are reminiscent of those from the growth optimal portfolio literature, e.g., the Kelly criterion.

Keywords

Evolution Kelly criterion Population genetics Portfolio selection 

Notes

Acknowledgements

I thank Lynne Orr for many helpful discussions of these ideas as well as comments on an early draft. I thank Terry Burnham, Steve Frank, Andrew Lo, and Daven Presgraves for helpful comments on the manuscript. This work was supported by the University of Rochester.

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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  1. 1.Department of BiologyUniversity of RochesterRochesterUSA

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