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Multi-period CAPM with Heterogeneous Agents

Author

Listed:
  • Hendri Adriaens

    (Econometrics & Operations Research Tilburg University)

  • Bertrand Melenberg

Abstract

This paper introduces a simulation model extending the well known Capital Asset Pricing Model by Sharpe and Lintner. Investors are modeled as multi-period forward looking portfolio optimizers. However, the future is not known \emph{a priori}, but has to be modeled and estimated. We allow agents to use past price information to forecast the future of asset returns, but with possibly different econometric forecasting techniques and different data sets. We use Microscopic Simulations to investigate the effects on equilibrium asset prices and on returns over an extended time period in a temporary equilibrium context. We show that models of this kind can reproduce key features of asset returns found in real life

Suggested Citation

  • Hendri Adriaens & Bertrand Melenberg, 2005. "Multi-period CAPM with Heterogeneous Agents," Computing in Economics and Finance 2005 163, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:163
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    More about this item

    Keywords

    multiperiod CAPM; heterogeneous agents; price dependent preferences; microscopic simulations;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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