Dynamics of Asset Prices Based on Time-varying Risk Aversion and Adaptive Beliefs System (in Korean)

Beum Jo Park ()

Economic Analysis (Quarterly), 2012, vol. 18, issue 3, 157-187

Abstract: This paper, unlike previous studies on price behavior in asset markets, suggests an adaptive beliefs system which is a heterogeneous agent model with time-varying risk aversion tendency. The dynamic herding of chartists and the time-varying risk aversion in the short term cause sharp changes in returns and persistence of volatility. This paper also extends adaptive beliefs system with the assumptions of bounded rationality and heterogeneous agents, and theoretically prove the existence of steady state of in the deterministic model and their stability. The empirical analysis using daily data of KOSPI and simulated time series data also provides a valuable evidence that the time-varying difference between levels of risk aversion for agent groups plays an important role in the dynamics of asset prices.

Keywords: Time-varying risk aversion; Bounded rationality; Heterogeneous agent; Adaptive beliefs system; Asset price dynamics (search for similar items in EconPapers)
JEL-codes: C10 G02 G10 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:bok:journl:v:18:y:2012:i:3:p:157-187

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