Comparing behavioural heterogeneity across asset classes

Saskia ter Ellen, Cars Hommes and Remco C.J. Zwinkels

Journal of Economic Behavior & Organization, 2021, vol. 185, issue C, 747-769

Abstract: We estimate an endowment-based asset pricing model in which agents have heterogeneous and time-varying beliefs about the future price on a range of asset classes. This gives insight into the extent behaviour differs across assets, and what this implies for market stability. We find evidence for behavioural heterogeneity for all asset classes but equity. Heterogeneity is especially large and persistent in asset classes for which limits to arbitrage are more binding. In less constrained (financial) markets, agents update their beliefs more frequently. Consequently, the probability of behavioural bubbles and crashes is substantially higher in macroeconomic asset classes than in financial asset classes.

Keywords: Financial markets; Heterogeneous expectations; Market stability (search for similar items in EconPapers)
JEL-codes: C24 E31 G12 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Working Paper: Comparing behavioural heterogeneity across asset classes (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:185:y:2021:i:c:p:747-769

DOI: 10.1016/j.jebo.2019.12.013

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