Estimating behavioural heterogeneity under regime switching

Carl Chiarella; Xue-Zhong He; Weihong Huang; Huanhuan Zheng

doi:10.1016/j.jebo.2012.02.014

Estimating behavioural heterogeneity under regime switching

Carl Chiarella
, Xue-Zhong He
, Weihong Huang
, Huanhuan Zheng

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

47 Citations (Scopus)

Abstract

Financial markets are typically characterized by high (low) price level and low (high) volatility during boom (bust) periods, suggesting that price and volatility tend to move together with different market conditions/states. By proposing a simple heterogeneous agent model of fundamentalists and chartists with Markov chain regime-dependent expectations and applying the S&P 500 data from January 2000 to June 2010, we show that the estimation of the model matches well with the boom and bust periods in the US stock market. In addition, we find evidence of time-varying behavioural heterogeneity within-group and that the model exhibits good forecasting accuracy. © 2012 Elsevier B.V.

Original language	English
Pages (from-to)	446-460
Journal	Journal of Economic Behavior and Organization
Volume	83
Issue number	3
DOIs	https://doi.org/10.1016/j.jebo.2012.02.014
Publication status	Published - 2012
Externally published	Yes

Bibliographical note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Funding

This work was initiated while Huanhuan Zheng was visiting the University of Technology, Sydney (UTS), whose hospitality she gratefully acknowledges. The financial support for Chiarella and He from the Australian Research Council (ARC) under Discovery Grant (DP0773776) is gratefully acknowledged. We would like to thank Willi Semmler and Lucas Bernard, the editors of this special issue, Remco Zwinkels and participants of the 2011 Guangzhou Conference on Nonlinear Economic Dynamics and Financial Market Modelling for helpful comments. The usual caveat applies.

Research Keywords

Boom and bust
Estimation
Heterogeneity
Regime switching

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10.1016/j.jebo.2012.02.014

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AU - Huang, Weihong

AU - Zheng, Huanhuan

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KW - Boom and bust

KW - Estimation

KW - Heterogeneity

KW - Regime switching

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M3 - RGC 21 - Publication in refereed journal

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EP - 460

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

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ER -

Estimating behavioural heterogeneity under regime switching

Abstract

Bibliographical note

Funding

Research Keywords

Policy Impact

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