@techreport{Franke2011simple,
abstract = {The paper proposes an elementary agent-based asset pricing model that, invoking the two trader types of fundamentalists and chartists, comprises four features: (i) price determination by excess demand; (ii) a herding mechanism that gives rise to a macroscopic adjustment equation for the market fractions of the two groups; (iii) a rush towards fundamentalism when the price misalignment becomes too large; and (iv) a stronger noise component in the demand per chartist trader than in the demand per fundamentalist trader, which implies a structural stochastic volatility in the returns. Combining analytical and numerical methods, the interaction between these elements is studied in the phase plane of the price and a majority index. In addition, the model is estimated by the method of simulated moments, where the choice of the moments reflects the basic stylized facts of the daily returns of a stock market index. A (parametric) bootstrap procedure serves to set up an econometric test to evaluate the model's goodness-of-fit, which proves to be highly satisfactory. The bootstrap also makes sure that the estimated structural parameters are well identified.},
address = {Bamberg},
author = {Reiner Franke and Frank Westerhoff},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
isbn = {978-3-931052-93-5},
keywords = {D84; G12; G14; G15; 330; structural stochastic volatility; method of simulated moments; autocorrelation pattern; fat tails; bootstrapped p-values},
language = {eng},
number = {83},
publisher = {BERG},
title = {Why a simple herding model may generate the stylized facts of daily returns: Explanation and estimation},
type = {BERG Working Paper Series},
url = {http://hdl.handle.net/10419/54994},
year = {2011}
}