A Heterogenous Agent Foundation for Tests of Asset Price Bubbles
AbstractWe provide heterogenous agent foundations for regime-switching tests of asset price bubbles, and illustrate by applying the models to historical U.S. stock market data. While the tests remain unchanged, we show the specification of regimes can be based on the beliefs of investors that come from an underlying heterogenous agent model. This allows consideration of alternative specifications for investor beliefs, straightforward interpretation of extensions to more than three regimes, and added exibility in determining the evolution of beliefs. Our empirical example shows that this can lead to results which differ from traditional regime-switching models.
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-35.
Length: 16 pages
Date of creation: Jun 2013
Date of revision:
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Heterogenous agents; asset price; bubble; rational; regime switching;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
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