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Statistical Properties of a Heterogeneous Asset Price Model with Time-Varying Second Moment

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Abstract

Stability and bifurcation analysis of deterministic systems has been widely used in modeling financial markets. However, the impact of such dynamic phenomena on various statistical properties of the corresponding stochastic model, including skewness and excess kurtosis, various autocorrelation (AC) patterns of under and over reactions, and volatility clustering characterised by the long-range dependence of ACs, is not clear and has been very little studied. This paper aims to study this issue. Through a simple behavioural asset pricing model with fundamentalists and chartists, we examine the statistical properties of the model and their connection to the dynamics of the underlying deterministic model. In particular, our analysis leads to some insights into the type of mechanism that may be generating some of the stylised facts, such as fat tails, skewness, high kurtosis and long memory, observed in high frequency financial data.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp142.pdf
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Bibliographic Info

Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 142.

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Length: 14
Date of creation: 01 Nov 2004
Date of revision:
Handle: RePEc:uts:rpaper:142

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Keywords: fundamentalists; chartists; stability; bifurcation; investors' under- and over-reactions; stylized facts;

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