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Heterogeneous Expectations in Asset Pricing:Empirical Evidence from the S&P500

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Abstract

This paper empirically assesses heterogeneous expectations in asset pricing. We use a maximum likelihood approach on S&P500 data to estimate a structural model. Our empirical results are consistent with a market populated with fundamentalists and chartists. In addition, agents switch between these groups conditional on their previous performance. The results imply that the model can explain the ináation and deáation of bubbles. Finally, the model is shown to be in the deterministically stable region, but produces stochastic bubbles of similar length and magnitude as empirically observed.

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File URL: http://www.qfrc.uts.edu.au/research/research_papers/rp344.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 344.

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Length: 31 pages
Date of creation: 01 Mar 2014
Date of revision:
Handle: RePEc:uts:rpaper:344

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Keywords: asset pricing; agent based models; fundamental analysis; technical analysis; momentum trading;

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