Why a simple herding model may generate the stylized facts of daily returns: Explanation and estimation

Arbeitspapier

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.

Angaben zum Objekt

• ISBN: 978-3-931052-93-5
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: BERG Working Paper Series ; No. 83

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Expectations; Speculations ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading ; International Financial Markets
• Thema: structural stochastic volatility ; method of simulated moments ; autocorrelation pattern ; fat tails ; bootstrapped p-values

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Franke, Reiner ; Westerhoff, Frank
• Ereignis: Veröffentlichung
• (wer): Bamberg University, Bamberg Economic Research Group (BERG)
• (wo): Bamberg
• (wann): 2011

Weitere Informationen

• Handle: http://hdl.handle.net/10419/54994
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ