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Asset Price Anomalies under Bounded Rationality

Author

Listed:
  • Emilio Barucci
  • Roberto Monte

    (Dipartimento di Studi Economici, Finanziari e Metodi Quantitativi, Universitý di Roma `Tor Vergata', Via Columbia, 2 -- 00133 Roma, Italy)

  • Roberto Renò

    (Scuola Normale Superiore, Pisa, Piazza dei Cavalieri 6 -- 56100 Pisa, Italy)

Abstract

We analyze the classical asset pricing model assuming non fully rational agents. Agents forecast future prices cum dividend through an adaptive learning rule. This assumption provides an explanation of some anomalies encountered in the empirical analysis of asset prices under full rationality: returns are serially correlated (positively over a short horizon and negatively over a longer horizon) and the dividend yield predicts future returns (positive correlation). Considering the continuous time limit process, the same regularities are established analytically for price increments.

Suggested Citation

  • Emilio Barucci & Roberto Monte & Roberto Renò, 2004. "Asset Price Anomalies under Bounded Rationality," Computational Economics, Springer;Society for Computational Economics, vol. 23(3), pages 255-269, April.
    • Handle: RePEc:kap:compec:v:23:y:2004:i:3:p:255-269
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    Cited by:

    1. Hung-Wen Lin & Mao-Wei Hung & Jing-Bo Huang, 2018. "Artificial Momentum, Native Contrarian, and Transparency in China," Computational Economics, Springer;Society for Computational Economics, vol. 51(2), pages 263-294, February.
    2. Sandrine Jacob Leal, 2015. "Fundamentalists, Chartists and Asset pricing anomalies," Post-Print hal-01508002, HAL.
    3. Diks, Cees & Dindo, Pietro, 2008. "Informational differences and learning in an asset market with boundedly rational agents," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1432-1465, May.
    4. Sandrine Jacob Leal, 2015. "Fundamentalists, chartists and asset pricing anomalies," Quantitative Finance, Taylor & Francis Journals, vol. 15(11), pages 1837-1850, November.

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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