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Testing of a market fraction model and power-law behaviour in the DAX 30

Listed author(s):
  • He, Xue-Zhong
  • Li, Youwei

This paper tests a simple market fraction asset pricing model with heterogeneous agents. By selecting a set of structural parameters of the model through a systematic procedure, we show that the autocorrelations (of returns, absolute returns and squared returns) of the market fraction model share the same pattern as those of the DAX 30. By conducting econometric analysis via Monte Carlo simulations, we characterize these power-law behaviours and find that estimates of the power-law decay indices, the (FI)GARCH parameters, and the tail index of the selected market fraction model closely match those of the DAX 30. The results strongly support the explanatory power of the heterogeneous agent models.

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Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 31 (2015)
Issue (Month): C ()
Pages: 1-17

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Handle: RePEc:eee:empfin:v:31:y:2015:i:c:p:1-17
DOI: 10.1016/j.jempfin.2015.01.001
Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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