Heterogeneous expectations and asset price dynamics
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Beschreibung
Within the seminal asset-pricing model by Brock and Hommes (1998), heterogeneous boundedly rational agents choose between a fixed number of expectation rules to forecast asset prices. However, agents’ heterogeneity is limited in the sense that they typically switch between a representative technical and a representative fundamental expectation
rule. Here we generalize their framework by considering that all agents follow their own time-varying technical and fundamental expectation rules. Estimating our model using the method of simulated moments reveals that it is able to explain the statistical properties of the daily behavior of the S&P500 quite well. Moreover, our analysis reveals
that heterogeneity is not only a realistic model property but clearly helps to explain the
intricate dynamics of financial markets.
Autor*in
Noemi Schmitt
Themen in »Heterogeneous expectations and asset price dynamics«
agent-based models coordination financial markets heterogeneity stylized facts technical and fundamental analysis