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Asset Price Anomalies Under Bounded Rationality

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  • Emilio Barucci

    ()
    (Universita di Pisa - Department of Economics)

  • Roberto Monte

    ()
    (University of Rome Tor Vergata - Dipartimento di Studi Economici, Finanziari e Metodi quantitativi (SEFEMEQ))

  • Roberto Reno

    ()
    (University of Siena - Department of Economics)

Abstract

We analyze the classical asset pricing model assuming non fully rational agents. Agents forecast future prices cum dividend through an adaptive learning rule. This assumption provides an explanation of some anomalies encountered in the empirical analysis of asset prices under full rationality: Returns are serially correlated (positively over a short horizon and negatively over a longer horizon) and the dividend yield predicts future returns (positive correlation). Considering the continuous time limit process, the same regularities are established analytically for price increments

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 19.

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Length: 22
Date of creation: 06 Jun 2003
Date of revision:
Handle: RePEc:rtv:ceisrp:19

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

Related research

Keywords: Asset Prices; Returns correlation; Bounded Rationality; Dividends; Diffusion Processes;

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Cited by:
  1. Diks, C.G.H. & Dindo, P.D.E., 2006. "Informational differences and learning in an asset market with boundedly rational agents," CeNDEF Working Papers 06-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.

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