Download or read book Asset Return Predictability in a Heterogeneous Agent Equilibrium Model written by Murray Carlson and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book On Measuring the Economic Significance of Asset Return Predictability written by Murray Carlson and published by . This book was released on 2001 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: A number of recent studies have measured the quantitative effect of excess return predictability on the optimal consumption and portfolio choices of a rational investor, and they have used the utility costs of ignoring predictability as a natural measure of economic significance. We use a general equilibrium model as a laboratory for generating predictable excess returns and for assessing the properties of the estimated consumption/portfolio rules, under both the empirical and the true dynamics of excess returns. We find that conditional rules based on ordinary least squares estimates of excess returns are severely biased, and they have a large variance across multiple simulated histories of the model. In this experiment, we find the estimation issues to be so severe that the simple unconditional consumption and portfolio rules, from Merton (1969), actually outperform (in a utility cost sense) both simple and bias-corrected empirical estimates of conditionally optimal policies.
Download or read book Catching Up with the Joneses written by Yeung Lewis Chan and published by . This book was released on 2001 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a general equilibrium exchange economy with a continuum of agents who have 'catching up with the Joneses' preferences and differ only with respect to the curvature of their utility functions. While individual risk aversion does not change over time, dynamic redistribution of wealth among the agents leads to countercyclical time variation in the Sharpe ratio of stock returns. We show that both the conditional risk premium and the return volatility are negatively related to the level of stock prices, as observed empirically. Therefore, our model exhibits many of the empirically observed properties of aggregate stock returns, e.g., patterns of autocorrelation in returns, the 'leverage effect' in return volatility and long-horizon return predictability. For comparison, otherwise similar representative agent economies with the same type of preferences exhibit counter-factual behavior, e.g., a constant Sharpe ratio of returns and procyclical risk premium and return volatility
Download or read book Asset Market Dynamics of Heterogeneous Agent Models with Learning written by Yuanying Guan and published by . This book was released on 2011 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: ABSTRACT: The standard Lucas asset pricing model makes two common assumptions of homogeneous agents and rational expectations equilibrium. However, these assumptions are unrealistic for real financial markets. In this work, we relax these assumptions and establish a Lucas type agent-based asset pricing model. We create an artificial economy with a single risky asset and populate it with heterogeneous, boundedly rational, utility maximizing, infinitely lived and forward looking agents. We restrict agents' information by allowing them to use only available information when they make optimal choices. With independent, identically distributed market returns, agents are able to compute their policy functions and the equilibrium pricing function with Duffie's method (Duffie, 1988) without perfect information about the market. When agents are out of equilibrium, they simultaneously compute their policy functions with predictive pricing functions and use adaptive learning schemes to learn the motion of the correct pricing function. Agents are able to learn the correct equilibrium pricing function with certain risk and learning parameters. In some other cases, the market price has excess volatility and the trading volume is very high. Simulations of the market behavior show rich dynamics, including a whole cascade from period doubling bifurcations to chaos. We apply the full families theory (De Melo and Van Strien, 1993) to prove that the rich dynamics do not come from numerical errors but are embedded in the structure of our dynamical system.
Download or read book A time homogeneous stationary equilibrium model of asset pricing with heterogeneous agents written by George Vachadze and published by . This book was released on 1999 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Return Predictability and Stock Market Crashes in a Simple Rational Expectations Model written by and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a simple rational expectations model of intertemporal asset pricing. It shows that heterogeneous risk aversion of investors is likely to generate declining aggregate relative risk aversion. This leads to predictability of asset returns and high and persistent volatility. Stock market crashes may be observed if relative risk aversion differs strongly across investors. Then aggregate relative risk aversion may sharply increase given a small impairment in fundamentals so that asset prices may strongly decline. Changes in aggregate relative risk aversion may also lead to resistance and support levels as used in technical analysis. For numerical illustration we propose an analytical asset price formula. -- Aggregate relative risk aversion ; Equilibrium asset price processes ; Excess Volatility ; Return predictability ; Stock market crashes
Download or read book Asset Pricing in a Lucas Framework with Boundedly Rational Heterogeneous Agents written by Andrew James Culham and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: ABSTRACT: The standard dynamic general equilibrium model of financial markets does a poor job of explaining the empirical facts observed in real market data. The common assumptions of homogeneous investors and rational expectations equilibrium are thought to be major factors leading to this poor performance. In an attempt to relax these assumptions, the literature has seen the emergence of agent-based computational models where artificial economies are populated with agents who trade in stylized asset markets. Although they offer a great deal of flexibility, the theoretical community has often criticized these agent-based models because the agents are too limited in their analytical abilities.
Download or read book Gone With the Vol written by Alex Hsu and published by . This book was released on 2019 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document a significant shift in the comovement of asset returns and macroeconomic volatility during the Great Moderation. Strong U.S. stock and bond return predictability from several macroeconomic volatility series before 1982 was followed by a significant predictability decline during the Great Moderation (1982-2008). These findings are robust to alternative empirical specifications and out-of-sample tests. In a calibrated time-varying-volatility equilibrium model, the predictability decline is consistent with changes in monetary policy and shock dynamics. A stronger policy response to inflation and lower cost-push shock variance reduce the sensitivity of macroeconomic variables and asset returns to a persistent volatility factor, explaining the lower predictability. The results contribute to examine macroeconomic volatility as a driver of expected asset returns, and identify sources of the Great Moderation using asset price dynamics.
Download or read book Financial assets in a heterogeneous agent general equilibrium model with aggregate and idiosyncratic risk written by Aaron J. Schmerbeck and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Equilibrium Asset Pricing Models and Predictability of Excess Returns written by M. Hashem Pesaran and published by . This book was released on 1993 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Long Memory in Financial Markets written by Min Zheng and published by . This book was released on 2018 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: During last decades, studies on asset pricing models witnessed a paradigm shift from rational expectation and representative agent to an alternative, behavioral view, where agents are heterogeneous and boundedly rational. In this paper, we model the financial market as an interaction of two types of boundedly rational investors -fundamentalists and chartists. We examine the dynamics of the market price and market behavior, which depend on investors' behavior and the interaction of the two types of investors. Numerical simulations of the corresponding stochastic model demonstrate that the model is able to replicate the stylized facts of financial time series, in particular the long-term dependence (long memory) of asset return volatilities. We further investigate the source of the long memory according to asset pricing mechanism of our model, and provide evidences of long memory by applying the modified R/S analysis. Our results demonstrate that the key parameter that has impact on the long memory is the speed of the price adjustment of the market maker at the equilibrium of demand and supply.
Download or read book Catching Up with the Joneses written by Yeung Lewis Chan and published by . This book was released on 2010 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a general equilibrium exchange economy with a continuum of agents who have 'catching up with the Joneses' preferences and differ only with respect to the curvature of their utility functions. While individual risk aversion does not change over time, dynamic redistribution of wealth among the agents leads to countercyclical time variation in the Sharpe ratio of stock returns. We show that both the conditional risk premium and the return volatility are negatively related to the level of stock prices, as observed empirically. Therefore, our model exhibits many of the empirically observed properties of aggregate stock returns, e.g., patterns of autocorrelation in returns, the 'leverage effect' in return volatility and long-horizon return predictability. For comparison, otherwise similar representative agent economies with the same type of preferences exhibit counter-factual behavior, e.g., a constant Sharpe ratio of returns and procyclical risk premium and return volatility.
Download or read book An Analytical Framework for Assessing Asset Pricing Models and Predictability written by René Garcia and published by . This book was released on 2008 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: New insights about the connections between stock market volatility and returns, the pricing of long-run claims, or return predictability have recently revived interest in consumption-based equilibrium asset pricing. The recursive utility model is prominently used in these contexts to determine the price of assets in equilibrium. Often, solutions are approximate and quantities of interest are computed through simulations. We propose an approach that delivers closed-form formulas for price-consumption and price-dividend ratios, as well as for many of the statistics usually computed to assess the ability of the model to reproduce stylized facts. The proposed framework is flexible enough to capture rich dynamics for consumption and dividends. Closed-form formulas facilitate the economic interpretation of empirical results. We illustrate the usefulness of our approach by investigating the properties of long-run asset pricing models in many empirical dimensions.
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Download or read book The Implications of First order Risk Aversion for Asset Market Risk Premiums written by Geert Bekaert and published by . This book was released on 1994 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Equilibrium Asset Pricing Models and Predictability of Excess Returns written by and published by . This book was released on 1991 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Heterogeneity and Asset Prices written by Nicolae Garleanu and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a tractable asset-pricing framework characterized by imperfect risk sharing among cohorts, who experience different levels of integrated life-time endowments. While all asset-pricing implications stem from the heterogeneity of consumption among investors, cross-sectional measures of inequality are non-volatile, only weakly related to asset prices, and far more persistent than the price-to-dividend ratio. We show how to identify a marginal agent's consumption growth in this framework by utilizing cross-sectional information. Our proposed notion of marginal-agent consumption growth exhibits different and more volatile low-frequency variation than the aggregate consumption growth per capita, which is normally used in representative agent models. These low frequency movements in our measure of marginal agent consumption growth can explain a large portion of the low frequency movements in real interest rates and, when combined with recursive preferences, can account quantitatively for the stylized asset-pricing facts (high market price of risk, equity premium, volatility, and return predictability).
