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Asset Price Anomalies under Bounded Rationality

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  • Emilio Barucci

    ()

  • Roberto Monte

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

  • Roberto Ren�

    () (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.

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Bibliographic Info

Article provided by Society for Computational Economics in its journal Computational Economics.

Volume (Year): 23 (2004)
Issue (Month): 3 (04)
Pages: 255-269

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Handle: RePEc:kap:compec:v:23:y:2004:i:3:p:255-269

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Web page: http://www.springerlink.com/link.asp?id=100248
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Cited by:
  1. 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.
  2. Lansing, Kevin J., 2006. "Lock-In Of Extrapolative Expectations In An Asset Pricing Model," Macroeconomic Dynamics, Cambridge University Press, vol. 10(03), pages 317-348, June.

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