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Estimation of an Adaptive Stock Market Model with Heterogeneous Agents

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  • Henrik Amilon

Abstract

Standard economic models based on rational expectations and homogeneity have problems to explain the complex and volitile nature of financial markets. Recently, boundedly rational and heterogeneous agents models have been developed, and simulated returns are found to exhibit various stylized facts, such as volatility clustering and fat tails. Here, we estimate a simple version of such a model by the use of efficient method of moments, and compare the results to real data and traditional econometric models. We find that the model generates returns with properties similar to observed data, but that the fit generally is poor.

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  • Henrik Amilon, 2003. "Estimation of an Adaptive Stock Market Model with Heterogeneous Agents," Research Paper Series 107, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:107
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    File URL: http://www.qfrc.uts.edu.au/research/research_papers/rp107.pdf
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    Keywords

    efficient method of moments; heterogeneous expectations; bounded rationality; evolutionary dynamics; adaptive beliefs;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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