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Online Appendix to Asset Pricing with Adaptive Learning

Author

Listed:
  • Eva Carceles-Poveda

    (SUNY Stony Brook)

  • Chryssi Giannitsarou

    (University of Cambridge)

Abstract

We study the extent to which self-referential adaptive learning can explain stylized asset pricing facts in a general equilibrium framework. In particular, we analyze the effects of recursive least squares and constant gain algorithms in a production economy and a Lucas type endowment economy. We find that (a) recursive least squares learning has almost no effects on asset price behavior, since the algorithm converges relatively fast to rational expectations, (b) constant gain learning may contribute towards explaining the stock price and return volatility as well as the predictability of excess returns in the endowment economy but (c) in the production economy the effects of constant gain learning are mitigated by the persistence induced by capital accumulation. We conclude that in the context of these two commonly used models, standard linear self-referential learning does not resolve the asset pricing puzzles observed in the data. (Copyright: Elsevier)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Eva Carceles-Poveda & Chryssi Giannitsarou, 2007. "Online Appendix to Asset Pricing with Adaptive Learning," Online Appendices carceles08, Review of Economic Dynamics.
  • Handle: RePEc:red:append:carceles08
    Note: The original article was published in the Review of Economic Dynamics, forthcoming
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    File URL: https://www.economicdynamics.org/appendix/carceles08.pdf
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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