Abstract
This paper tests a simple market fraction asset pricing model with heterogeneous
agents. By selecting a set of structural parameters of the model through a systematic procedure, we show that the autocorrelations (of returns, absolute returns and squared returns) of the market fraction model share the same pattern as those of the DAX 30. By conducting econometric analysis via Monte Carlo simulations, we characterize these power-law behaviours and find that estimates of the power-law decay indices, the (FI)GARCH parameters, and the tail index of the selected market fraction model closely match those of the DAX 30. The results strongly support the explanatory power of the heterogeneous agent models.
agents. By selecting a set of structural parameters of the model through a systematic procedure, we show that the autocorrelations (of returns, absolute returns and squared returns) of the market fraction model share the same pattern as those of the DAX 30. By conducting econometric analysis via Monte Carlo simulations, we characterize these power-law behaviours and find that estimates of the power-law decay indices, the (FI)GARCH parameters, and the tail index of the selected market fraction model closely match those of the DAX 30. The results strongly support the explanatory power of the heterogeneous agent models.
| Original language | English |
|---|---|
| Pages (from-to) | 1-17 |
| Number of pages | 17 |
| Journal | Journal of Empirical Finance |
| Volume | 31 |
| Early online date | 15 Jan 2015 |
| DOIs | |
| Publication status | Published - Mar 2015 |
Keywords
- Asset pricing, fundamentalists and trend followers,
- (FI)GARCH, power-law, tail index
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He, X-Z., & Li, Y. (2015). Testing of a Market Fraction Model and Power-law Behaviour in the DAX 30. Journal of Empirical Finance, 31, 1-17. https://doi.org/10.1016/j.jempfin.2015.01.001