Lu, Yumin;
Tse, Alex SL;
(2026)
Portfolio Selection in Contests.
SIAM Journal on Financial Mathematics
, 17
(1)
pp. 41-77.
10.1137/24M1686358.
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Abstract
In an investment contest with incomplete information, a finite number of agents dynamically trade assets with idiosyncratic risk and are rewarded based on the relative ranking of their terminal portfolio values. We explicitly characterize a symmetric Nash equilibrium of the contest and rigorously verify its uniqueness. The connection between the reward structure and the agents’ portfolio strategies is examined. A top-heavy payout rule results in an equilibrium portfolio return distribution with high positive skewness, which suffers from a large likelihood of poor performance. Risky asset holding increases when competition intensifies in a winner-takes-all contest.
| Type: | Article |
|---|---|
| Title: | Portfolio Selection in Contests |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1137/24M1686358 |
| Publisher version: | https://doi.org/10.1137/24M1686358 |
| Language: | English |
| Additional information: | This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | portfolio selection, contests, relative performance, Nash equilibrium, constant-sum game, martingale duality, reward design |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Mathematics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10214043 |
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