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Asset Price Anomalies Under Bounded Rationality

Author

Listed:
  • Emilio Barucci

    (Universita di Pisa - Department of Economics)

  • Roberto Monte

    (University of Rome Tor Vergata - Dipartimento di Studi Economici, Finanziari e Metodi quantitativi (SEFEMEQ))

  • Roberto Reno

    (University of Siena - Department of Economics)

Abstract

We analyze the classical asset pricing model assuming non fully rational agents. Agents forecast future prices cum dividend through an adaptive learning rule. This assumption provides an explanation of some anomalies encountered in the empirical analysis of asset prices under full rationality: Returns are serially correlated (positively over a short horizon and negatively over a longer horizon) and the dividend yield predicts future returns (positive correlation). Considering the continuous time limit process, the same regularities are established analytically for price increments

Suggested Citation

  • Emilio Barucci & Roberto Monte & Roberto Reno, 2003. "Asset Price Anomalies Under Bounded Rationality," CEIS Research Paper 19, Tor Vergata University, CEIS.
    • Handle: RePEc:rtv:ceisrp:19
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    File URL: https://ceistorvergata.it/RePEc/rpaper/No-19-Barucci.pdf
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    Cited by:

    1. Hung-Wen Lin & Mao-Wei Hung & Jing-Bo Huang, 2018. "Artificial Momentum, Native Contrarian, and Transparency in China," Computational Economics, Springer;Society for Computational Economics, vol. 51(2), pages 263-294, February.
    2. Diks, Cees & Dindo, Pietro, 2008. "Informational differences and learning in an asset market with boundedly rational agents," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1432-1465, May.
    3. Sandrine Jacob Leal, 2015. "Fundamentalists, chartists and asset pricing anomalies," Quantitative Finance, Taylor & Francis Journals, vol. 15(11), pages 1837-1850, November.
    4. Sandrine Jacob Leal, 2015. "Fundamentalists, Chartists and Asset pricing anomalies," Post-Print hal-01508002, HAL.

    More about this item

    Keywords

    Asset Prices; Returns correlation; Bounded Rationality; Dividends; Diffusion Processes;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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