Strategic Asset Allocation with Heterogeneous Beliefs
AbstractWe study the presence of long term investors using different return forecasting strategies and switching them based on their past performance generates the price trends observed in financial markets. In the empirical section, we assume that investors choose how to allocate their portfoilios among four major stock indices: Dow Jones, FTSE, Nikkei and Hand Seng. The exercise shows that a decrease in the proportion of fundamentalists is related to movements in prices that are subsequentialy reverted. In this paper, we bridge the literatures on intertemporal asset allocation and on heterogeneous beliefs. The interaction between two switching types of agents, e.g. fundamentalists and chartists, is responsible for endogenously generating the observed price trends.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2010-042.
Length: 43 p.
Date of creation: Dec 2010
Date of revision:
Publication status: Published by:
asset pricing; intertemporal asset allocation; heterogeneous beliefs; adaptative learning;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-30 (All new papers)
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