Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174878
Authors: 
Schmitt, Noemi
Year of Publication: 
2018
Series/Report no.: 
BERG Working Paper Series 134
Abstract: 
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.
Subjects: 
financial markets
stylized facts
agent-based models
technical and fundamental analysis
heterogeneity and coordination
JEL: 
C63
D84
G15
ISBN: 
978-3-943153-55-2
Document Type: 
Working Paper

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