Heterogeneous expectations in asset pricing: Empirical evidence from the S&P500

Carl Chiarella, Xue Zhong He, Remco C.J. Zwinkels*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

45 Citations (Scopus)

Abstract

This paper empirically assesses heterogeneous expectations in asset pricing. We use a maximum likelihood approach on S&P500 data to estimate a structural model. Our empirical results are consistent with a market populated with fundamentalists and chartists. In addition, agents switch between these groups conditional on their previous performance. The results imply that the model can explain the inflation and deflation of bubbles. Finally, the model is shown to be in the deterministically stable region, but produces stochastic bubbles of similar length and magnitude as empirically observed.

Original languageEnglish
Pages (from-to)1-16
Number of pages16
JournalJournal of Economic Behavior and Organization
Volume105
DOIs
Publication statusPublished - Sept 2014
Externally publishedYes

Keywords

  • Agent based models
  • Asset pricing
  • Fundamental analysis
  • Momentum trading
  • Technical analysis

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