Advanced Search
MyIDEAS: Login

Online Appendix to Asset Pricing with Adaptive Learning

Contents:

Author Info

  • Eva Carceles-Poveda

    (SUNY Stony Brook)

  • Chryssi Giannitsarou

    (University of Cambridge)

Abstract

We study the extent to which self-referential adaptive learning can explain stylized asset pricing facts in a general equilibrium framework. In particular, we analyze the effects of recursive least squares and constant gain algorithms in a production economy and a Lucas type endowment economy. We find that (a) recursive least squares learning has almost no effects on asset price behavior, since the algorithm converges relatively fast to rational expectations, (b) constant gain learning may contribute towards explaining the stock price and return volatility as well as the predictability of excess returns in the endowment economy but (c) in the production economy the effects of constant gain learning are mitigated by the persistence induced by capital accumulation. We conclude that in the context of these two commonly used models, standard linear self-referential learning does not resolve the asset pricing puzzles observed in the data. (Copyright: Elsevier)

(This abstract was borrowed from another version of this item.)

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: http://www.EconomicDynamics.org/appendix/carceles08.pdf
Download Restriction: None

Bibliographic Info

Paper provided by Review of Economic Dynamics in its series Technical Appendices with number carceles08.

as in new window
Length: 7 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:red:append:carceles08

Note: The original article was published in the Review of Economic Dynamics, forthcoming
Contact details of provider:
Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC

Order Information:
Email:
Web: http://www.EconomicDynamics.org/RED17.htm

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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. Campbell, John & Yogo, Motohiro, 2006. "Efficient tests of stock return predictability," Scholarly Articles 3122601, Harvard University Department of Economics.
  2. John Y. Campbell & Robert J. Shiller, 1988. "Stock Prices, Earnings and Expected Dividends," NBER Working Papers 2511, National Bureau of Economic Research, Inc.
  3. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
  4. Bullard, James & Duffy, John, 2001. "Learning And Excess Volatility," Macroeconomic Dynamics, Cambridge University Press, vol. 5(02), pages 272-302, April.
  5. Stephen G. Cecchetti & Pok-sang Lam & Nelson C. Mark, 1998. "Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good To Be True?," NBER Working Papers 6354, National Bureau of Economic Research, Inc.
  6. John Y. Campbell, 2002. "Consumption-Based Asset Pricing," Harvard Institute of Economic Research Working Papers 1974, Harvard - Institute of Economic Research.
  7. Giannitsarou, Chryssi, 2005. "E-Stability Does Not Imply Learnability," Macroeconomic Dynamics, Cambridge University Press, vol. 9(02), pages 276-287, April.
  8. Kocherlakota, N., 1995. "The Equity Premium: It's Still a Puzzle," Working Papers 95-05, University of Iowa, Department of Economics.
  9. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report 280, Federal Reserve Bank of Minneapolis.
  10. Ellen R. McGrattan & Edward C. Prescott, 2003. "Average Debt and Equity Returns: Puzzling?," American Economic Review, American Economic Association, vol. 93(2), pages 392-397, May.
  11. Kaushik Mitra & Seppo Honkapohja, 1999. "Learning with Bounded Memory in Stochastic Models," Computing in Economics and Finance 1999 221, Society for Computational Economics.
  12. Ravi Jagannathan & Ellen R. McGrattan & Anna Scherbina., 2000. "The declining U.S. equity premium," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-19.
  13. Chryssi Giannitsarou & Eva Carceles-Poveda, 2004. "Adaptive Learning in Practice," Computing in Economics and Finance 2004 271, Society for Computational Economics.
  14. Bacon, Robert W, 1980. "A Note on the Properties of Products of Random Variables with Reference to Economic Applications," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 42(4), pages 337-44, November.
  15. Klaus Adam & Albert Marcet & Juan Pablo Nicolini, 2006. "Learning and Stock Market Volatility," Computing in Economics and Finance 2006 15, Society for Computational Economics.
  16. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
  17. Timmermann, Allan, 1996. "Excess Volatility and Predictability of Stock Prices in Autoregressive Dividend Models with Learning," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 523-57, October.
  18. Timmermann, Allan G, 1993. "How Learning in Financial Markets Generates Excess Volatility and Predictability in Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1135-45, November.
  19. repec:cup:macdyn:v:5:y:2001:i:2:p:272-302 is not listed on IDEAS
  20. Brennan, Michael J. & Xia, Yihong, 2001. "Stock price volatility and equity premium," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 249-283, April.
  21. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
Full references (including those not matched with items on IDEAS)

Citations

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

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

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

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:red:append:carceles08. 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: (Christian Zimmermann).

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.