An evolutionary CAPM under heterogeneous beliefs

Carl Chiarella, Roberto Dieci, Xue Zhong He*, Kai Li

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

30 Citations (Scopus)


Heterogeneity and evolutionary behaviour of investors are two of the most important characteristics of financial markets. This paper incorporates the adaptive behaviour of agents with heterogeneous beliefs and establishes an evolutionary capital asset pricing model (ECAPM) within the mean-variance framework. We show that the rational behaviour of agents switching to better-performing trading strategies can cause large deviations of the market price from the fundamental value of one asset to spill over to other assets. Also, this spill-over effect is associated with high trading volumes and persistent volatility characterized by significantly decaying autocorrelations of, and positive correlation between, price volatility and trading volume.

Original languageEnglish
Pages (from-to)185-215
Number of pages31
JournalAnnals of Finance
Issue number2
Publication statusPublished - May 2013
Externally publishedYes


  • Evolutionary CAPM
  • Heterogeneous beliefs
  • Market stability
  • Spill-over effects
  • Trading volume
  • Volatility


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