Estimating behavioural heterogeneity under regime switching

Carl Chiarella, Xuezhong (Tony) He (), Weihong Huang () and Huanhuan Zheng

Journal of Economic Behavior & Organization, 2012, vol. 83, issue 3, 446-460

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.

Keywords: Estimation; Heterogeneity; Regime switching; Boom and bust (search for similar items in EconPapers)
JEL-codes: C13 C51 G01 G10 G12 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56)

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Working Paper: Estimating Behavioural Heterogeneity Under Regime Switching (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:83:y:2012:i:3:p:446-460

DOI: 10.1016/j.jebo.2012.02.014

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