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Estimation of an Adaptive Stock Market Model with Heterogeneous Agents

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Author Info
Amilon, Henrik () (European Central Bank)
Abstract

Standard economic models based on rational expectations and homogeneity have problems explaining the complex and volatile nature of financial markets. Recently, boundedly rational and heterogeneous agent models have been developed and simulated returns are found to exhibit various stylized facts, such as volatility clustering and fat tails. Here, we are interested in how well the proposed models can explain all the properties seen in real data, not just one or a few at a time. Hence, we do a proper estimation of some simple versions of such a model by the use of efficient method of moments and maximum likelihood and compare the results to real data and more traditional econometric models. We discover two main findings. First, the similarities with observed data found in earlier simulations rely crucially on a somewhat unrealistic modeling of the noise term. Second, when the stochastic is more properly introduced we find that the models are able to generate some stylized facts, but that the fit generally is quite poor.

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Publisher Info
Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 177.

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Length: 31 pages
Date of creation: 01 Jan 2005
Date of revision:
Handle: RePEc:hhs:rbnkwp:0177

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Related research
Keywords: Efficient method of moments; heterogeneous expectations; bounded rationality; evolutionary dynamics; adaptive beliefs;

Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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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.:
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