Market Selection in an Evolutionary Market with Nonstationary Dividends

Which strategies will survive in the long run and which will diminish? These are important questions in evolutionary finance. Up to now we only know answers in the case of stationary dividends. But the evolutionary perspective to the financial market is considering very long time horizons. In such a setting the creation and the vanishing of firms becomes a high relevance. If companies do not live infinitely long this implies automatically nonstationary dividends. Since the creation and the vanishing can be observed one time in the life of a company, long time series do not help to learn the process of dividends. Thus the dividend process must be learned from similar companies. This happens even if the dividend processes of the companies are independent. To price a firm the observed dividend process of one company is not enough. Information from the cross-section must be included to get an investment strategy, which is competitive in the market selection process.