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Artificial Long Memory Effects in Two Agend-Based Asset Pricing Models

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Author Info
Franke, Reiner
Abstract

This note is concerned with two recent agent-based models of speculative dynamics from the literature, one by Gaunersdorfer and Hommes and the other by He and Li. At short as well as long lags, both of them display an autocorrelation structure in absolute and squared returns that comes remarkably close to that of real data at a daily frequency. The note argues that these long memory effects are to be ascribed to the stochastic specification of the price equation, which given the wide fluctuations in these models unduly fails to normalize the price shocks. Under an appropriate respecification, the long memory completely disappears. --

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2008,15.

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Date of creation: 2008
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Handle: RePEc:zbw:cauewp:7368

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: Volatility clustering; Autocorrelations of returns; Fundamentalists and trendfollowers;

Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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  1. He, Xue-Zhong & Li, Youwei, 2007. "Power-law behaviour, heterogeneity, and trend chasing," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3396-3426, October. [Downloadable!] (restricted)
  2. Amilon, Henrik, 2008. "Estimation of an adaptive stock market model with heterogeneous agents," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 342-362, March. [Downloadable!] (restricted)
  3. Manzan, Sebastiano & Westerhoff, Frank, 2005. "Representativeness of news and exchange rate dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 29(4), pages 677-689, April. [Downloadable!] (restricted)
    Other versions:
  4. Gaunersdorfer, A. & Hommes, C.H., 2000. "A Nonlinear Structural Model for Volatility Clustering," CeNDEF Working Papers 00-02, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    Other versions:
  5. Beja, Avraham & Goldman, M Barry, 1980. " On the Dynamic Behavior of Prices in Disequilibrium," Journal of Finance, American Finance Association, vol. 35(2), pages 235-48, May. [Downloadable!] (restricted)
  6. Simone Alfarano & Thomas Lux & Friedrich Wagner, 2005. "Estimation of Agent-Based Models: The Case of an Asymmetric Herding Model," Computational Economics, Springer, vol. 26(1), pages 19-49, August. [Downloadable!] (restricted)
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