Testing of a Market Fraction Model and Power-law Behaviour in the DAX 30

Xue-Zhong He, Youwei Li

Research output: Contribution to journalArticlepeer-review

13 Citations (Scopus)
215 Downloads (Pure)


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.
Original languageEnglish
Pages (from-to)1-17
Number of pages17
JournalJournal of Empirical Finance
Early online date15 Jan 2015
Publication statusPublished - Mar 2015


  • Asset pricing, fundamentalists and trend followers,
  • (FI)GARCH, power-law, tail index


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