Heterogeneity, convergence, and autocorrelations

By Xue-zhong He, Youwei Li. 2008

70 citations recorded by the source corpus.

This paper is a contribution to the literature on the explanatory power and calibration of heterogeneous asset pricing models. We set out a new stochastic market-fraction asset pricing model of fundamentalists and trend followers under a market maker. Our model explains key features of financial market behaviour such as market dominance, convergence to the fundamental price and under- and over-reaction. We use the dynamics of the underlying deterministic system to characterize these features and statistical properties, including convergence of the limiting distribution and autocorrelation structure. We confirm these properties using Monte Carlo simulations.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/7ccc8c30a8b0f25685b1230023351fec38fccca5

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Fabio Tramontana
2. Laura Gardini
3. Frank H. Westerhoff
4. Cars H. Hommes
5. Roberto Dieci
6. R. Franke

In Finance

1. Fabio Tramontana
2. Frank H. Westerhoff
3. Laura Gardini
4. Cars H. Hommes

Citations in the corpus

• On the complicated price dynamics of a simple one-dimensional discontinuous financial market model with heterogeneous interacting traders (2010, background): “…economic models that feature piecewise-smooth or discontinuous maps, for example, the pioneering works by Day (1982, 1994); Day and Shafer (1987); Day and Pianigiani 1 For specific examples see Gaunersdorfer and Hommes (2007); He and Li (2008); Franke and Westerhoff (2009) and Franke (2010).”