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Heterogeneous Gain Learning and Long Swings in Asset Prices

  • Blake LeBaron

    ()

    (International Business School, Brandeis University)

This paper considers the impact of heterogeneous gain learning in an asset pricing model. A relatively stylized model is shown to generate persistent swings of asset prices from their fundamental values which replicates long range samples of U.S financial data. The detailed mechanisms of the learning models are then explored. Evidence suggests that agents' perceptions of risk and its dynamics and persistence are important in generating appropriate price/fundamental dynamics. Agents putting large amounts of weight on the recent past in their volatility models control a large fraction of wealth, and are important in perpetuating the volatility magnifying dynamics of the market.

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File URL: http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP10.pdf
File Function: First version, 2010
Download Restriction: no

File URL: http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP10R.pdf
File Function: Revised version, 2011
Download Restriction: no

Paper provided by Brandeis University, Department of Economics and International Businesss School in its series Working Papers with number 10.

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Length: 47 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:brd:wpaper:10
Contact details of provider: Postal: MS032, P.O. Box 9110, Waltham, MA 02454-9110
Web page: http://www.brandeis.edu/departments/economics/

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  18. repec:att:wimass:9621 is not listed on IDEAS
  19. Kenneth L. Fisher & Meir Statman, 2006. "Market Timing In Regressions And Reality," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(3), pages 293-304.
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  22. Honkapohja, Seppo & Mitra, Kaushik, 2002. "Learning stability in economics with heterogeneous agents," Working Paper Series 0120, European Central Bank.
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  24. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
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