A Heterogenous Agent Foundation for Tests of Asset Price Bubbles

Vipin Arora () and Shuping Shi

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We provide heterogenous agent foundations for regime-switching tests of asset price bubbles, and illustrate by applying the models to historical U.S. stock market data. While the tests remain unchanged, we show the specification of regimes can be based on the beliefs of investors that come from an underlying heterogenous agent model. This allows consideration of alternative specifications for investor beliefs, straightforward interpretation of extensions to more than three regimes, and added exibility in determining the evolution of beliefs. Our empirical example shows that this can lead to results which differ from traditional regime-switching models.

Keywords: Heterogenous agents; asset price; bubble; rational; regime switching (search for similar items in EconPapers)
JEL-codes: C51 C53 D84 G12 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2013-06
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2013-35

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