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The adaptiveness in stock markets: testing the stylized facts in the DAX 30

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  • Xue-Zhong He

    (University of Technology Sydney)

  • Youwei Li

    (Queen’s University of Belfast)

Abstract

By testing a simple asset pricing model of heterogeneous agents to characterize the power-law behavior of the DAX 30 from 1975 to 2007, we provide supporting evidence on empirical findings that investors and fund managers use combinations of fixed and switching strategies based on fundamental and technical analysis when making investment decisions. A mechanism analysis based on the calibrated model provides a behavioral insight into the explanatory power of rational switching behavior of investors on the volatility clustering and long range dependence in return volatility.

Suggested Citation

  • Xue-Zhong He & Youwei Li, 2017. "The adaptiveness in stock markets: testing the stylized facts in the DAX 30," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 1071-1094, November.
  • Handle: RePEc:spr:joevec:v:27:y:2017:i:5:d:10.1007_s00191-017-0505-9
    DOI: 10.1007/s00191-017-0505-9
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    3. He, Xue-Zhong & Li, Kai & Wang, Chuncheng, 2016. "Volatility clustering: A nonlinear theoretical approach," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 274-297.
    4. Zheng, Min & Liu, Ruipeng & Li, Youwei, 2018. "Long memory in financial markets: A heterogeneous agent model perspective," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 38-51.

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    Keywords

    Adaptive switching; Fundamental and technical analysis; Stylized facts; Power-law; Tail index;
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    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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