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BERG Working Paper Series, Universität Bamberg >
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http://hdl.handle.net/10419/54994
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| Title: | | Why a simple herding model may generate the stylized facts of daily returns: Explanation and estimation  |
| Authors: | | Franke, Reiner Westerhoff, Frank |
| Issue Date: | | 2011 |
| Series/Report no.: | | BERG Working Paper Series 83 |
| 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. |
| Subjects: | | structural stochastic volatility method of simulated moments autocorrelation pattern fat tails bootstrapped p-values |
| JEL: | | D84 G12 G14 G15 |
| ISBN: | | 978-3-931052-93-5 |
| Document Type: | | Working Paper |
| Appears in Collections: | | BERG Working Paper Series, Universität Bamberg
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