1,720,996 research outputs found
Preface
No full textThe MDEF Workshop has been held at the University of Urbino since 2000. The 2014 Workshop is particularly dedicated to Carl Chiarella for his 70th birthday. As the second home (along with the University of Bielefeld, another second home), Carl visited Urbino in 1998 for the first time and the visit has become an almost annual event since then. In order to commemorate the occasion, a number of Carl’s colleagues from around the world gladly agreed to contribute chapters to a special book dedicated to this event. The book is the outcome of this process. It contains the latest developments in nonlinear economic dynamics, financial market modeling, and quantitative finance, the three most active research areas Carl has been involved in
NONLINEAR ECONOMIC DYNAMICS AND FINANCIAL MODELLING - Essays in Honour of Carl Chiarella
No full textThis book reflects the state of the art on nonlinear economic dynamics, financial market modelling and quantitative finance. It contains eighteen papers with topics ranging from disequilibrium macroeconomics, monetary dynamics, monopoly, financial market and limit order market models with boundedly rational heterogeneous agents to estimation, time series modelling and empirical analysis, and from risk management of interest-rate products, futures price volatility and American option pricing with stochastic volatility to evaluation of risk and derivatives of electricity market. The book illustrates some of the most recent research tools in these areas and will be of interest to economists working in economic dynamics and financial market modelling, to mathematicians who are interested in applying complexity theory to economics and finance, and to market practitioners and researchers in quantitative finance interested in limit order, futures and electricity market modelling, derivative pricing and risk management
Time-varying beta: A boundedly rational equilibrium approach
No full textThe conditional CAPM with time-varying betas has been widely used to explain the cross-section of asset returns. However, most of the literature on time-varying beta is motivated by econometric estimation using various latent risk factors rather than explicit modelling of the stochastic behaviour of betas through agents' behaviour, such as momentum trading. Misspecification of beta risk and the lack of any theoretical guidance on how to specify risk factors based on the representative agent economy appear empirically challenging. In this paper, we set up a dynamic equilibrium model of a financial market with boundedly rational and heterogeneous agents within the mean-variance framework of repeated one-period optimisation and develop an explicit dynamic behaviour CAPM relation between the expected equilibrium returns and time-varying betas. By incorporating the two most commonly used types of investors, fundamentalists and chartists, into the model, we show that there is a systematic change in the market portfolio, risk-return relationships, and time varying betas when investors change their behaviour, such as the chartists acting as momentum traders. In particular, we demonstrate the stochastic nature of time-varying betas. We also show that the commonly used rolling window estimates of time-varying betas may not be consistent with the ex-ante betas implied by the equilibrium model. The results provide a number of insights into an understanding of time-varying beta. © 2011 Springer-Verlag
Introduction
No full textThis book reflects the state of the art on nonlinear economic dynamics, financial market modelling and quantitative finance. It contains eighteen papers with topics ranging from disequilibrium macroeconomics, monetary dynamics, monopoly, financial market and limit order market models with boundedly rational heterogeneous agents to estimation, time series modelling and empirical analysis, and from risk management of interest-rate products, futures price volatility and American option pricing with stochastic volatility to evaluation of risk and derivatives of electricity market. The book illustrates some of the most recent research tools in these areas and will be of interest to economists working in economic dynamics and financial market modelling, to mathematicians who are interested in applying complexity theory to economics and finance, and to market practitioners and researchers in quantitative finance interested in limit order, futures and electricity market modelling, derivative pricing and risk management
Do heterogeneous beliefs diversify market risk?
Full text linkIt is believed that diversity is good for our society, but is it good for financial markets? In particular, does the diversity with respect to beliefs among investors reduce the market risk of risky assets? The current paper aims to answer this question.Within the standard mean-variance framework, we introduce heterogeneous beliefs not only in risk preferences and expected payoffs but also in variances/covariances. By aggregating heterogeneous beliefs into a market consensus belief, we obtain capital asset pricing model-like equilibrium price and return relationships under heterogeneous beliefs.We show that the market aggregate behaviour is in principle a weighted average of heterogeneous individual behaviours. The impact of heterogeneity on the market equilibrium price and risk premium is examined in general. In particular, we give a positive answer to the question in the title by considering some special structure in heterogeneous beliefs. In addition, we provide an explanation of Miller's long-standing hypothesis on the relation between a stock's risk and the divergence of opinions. © 2011 Taylor & Francis
The dynamic behaviour of asset prices in disequilibrium: a survey
No full textThis article surveys boundedly rational heterogeneous agent (BRHA) models of financial markets. We give particular emphasis to the role of the market clearing mechanism used, the utility function of the investors, the interaction of price and wealth dynamics, and calibration of this class of models. Due to agents behavioural features and market noise, the BRHA class of models are both non-linear and stochastic. We show that BRHA models produce both a locally stable fundamental equilibrium corresponding to that of the standard paradigm, as well as instability with a consequent rich range of possible complex behaviours that are analysed by both simulation and deterministic bifurcation analysis. A calibrated model is able to reproduce quite well the stylised facts of financial markets. The BRHA framework seems able to better accommodate market features such as fat tails, volatility clustering, large excursions from the fundamental and bubbles than the standard financial market paradigm
An evolutionary CAPM under heterogeneous beliefs
No full textHeterogeneity and evolutionary behaviour of investors are two of the most important characteristics of financial markets. This paper incorporates the adaptive behaviour of agents with heterogeneous beliefs and establishes an evolutionary capital asset pricing model (ECAPM) within the mean-variance framework. We show that the rational behaviour of agents switching to better-performing trading strategies can cause large deviations of the market price from the fundamental value of one asset to spill over to other assets. Also, this spill-over effect is associated with high trading volumes and persistent volatility characterized by significantly decaying autocorrelations of, and positive correlation between, price volatility and trading volume. © 2012 Springer-Verlag Berlin Heidelberg
A framework for CAPM with heterogeneous beliefs
No full textThe Sharpe-Lintner-Mossin (Sharpe 1964; Lintner 1965; Mossin 1966) Capital Asset Pricing Model (CAPM) plays a central role in modern finance theory. It is founded on the paradigm of homogeneous beliefs and a rational representative agent. However, froma theoretical perspective this paradigmhas been criticized on a number of grounds, in particular concerning its extreme assumptions about homogeneous beliefs, information about the economic environment, and the computational ability on the part of the rational representative economic agent. The impact of heterogeneous beliefs among investors on the market equilibrium price has been an important focus in the CAPM literature. A number of models with investorswho have heterogeneous beliefs have been previously studied. 1 A common finding in this strand of research is that heterogeneous beliefs can affect aggregate market returns. However, the question remains as to how exactly does heterogeneity affect themarket risk of risky assets? In much of this earlier work, the heterogeneous beliefs reflect either differences of opinion among the investors2 or differences in information upon which investors are trying to learn by using some Bayesian updating rule.3 Heterogeneity has been investigated in the context of either CAPM-like mean-variancemodels (for instance, Lintner 1969; Miller 1977;Williams 1977; and Mayshar 1982) or Arrow-Debreu contingent claims models (as in Varian 1985;Abel 1989; 2002; and Calvet et al. 2004). © 2010 Springer-Verlag Berlin Heidelberg
Going Beyond Counting First Authors in Author Co-citation Analysis
Full text linkThe present study examines one of the fundamental aspects of author co-citation analysis (ACA) - the way co-citation
counts are defined. Co-citation counting provides the data on which all subsequent statistical analyses and mappings
are based, and we compare ACA results based on two different types of co-citation counting - the traditional type that
only counts the first one among a cited work's authors on the one hand and a non-traditional type that takes into
account the first 5 authors of a cited work on the other hand. Results indicate that the picture produced through this non-traditional author co-citation counting contains more coherent author groups and is therefore considerably clearer. However, this picture represents fewer specialties in the research field being studied than that produced through the traditional first-author co-citation counting when the same number of top-ranked authors is selected and analyzed. Reasons for these effects are discussed
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