Advanced Search
MyIDEAS: Login

Continuous Beliefs Dynamics


Author Info

  • Cees Diks

    (Faculty of Economics and Econometrics, University of Amsterdam)

  • Roy van der Weide

    (Faculty of Economics and Econometrics, University of Amsterdam)


We propose a general framework for studying the evolution ofheterogeneous beliefs in a dynamic feedback setting. Beliefsdistributions are defined on a continuous space representingthe possible strategies agents can choose from. Agents base theirchoices on past performances. As new information becomesavailable strategies are re-evaluated and the beliefsdistribution is updated using a continuous choice model. Thisapproach gives rise to price dynamics in which the beliefsdistribution evolves together with realized prices. Thestatistical properties of the endogenous random pricefluctuations are fully determined by the model. The structure ofthe macroscopic model depends on the class of predictors and onthe performance measure used by the agents. Whenever a well-knowneconometric model is obtained, an economic interpretation of themodel parameters can be given, as is shown here for an ARCHmodel. The approach is illustrated with several examples andempirical applications.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: no

Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-007/1.

as in new window
Date of creation: 16 Jan 2003
Date of revision:
Handle: RePEc:dgr:uvatin:20030007

Contact details of provider:
Web page:

Related research

Keywords: Expectation formation; Heterogeneity; Continuous beliefs;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Karl B. Diether & Christopher J. Malloy & Anna Scherbina, 2002. "Differences of Opinion and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 57(5), pages 2113-2141, October.
Full references (including those not matched with items on IDEAS)


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Brock, William A. & Hommes, Cars H. & Wagener, Florian O. O., 2005. "Evolutionary dynamics in markets with many trader types," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 7-42, February.
  2. Massaro, D., 2012. "Regime shifts: early warnings," CeNDEF Working Papers 12-02, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  3. Massaro, Domenico, 2013. "Heterogeneous expectations in monetary DSGE models," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 680-692.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:dgr:uvatin:20030007. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.