Asset Price Anomalies Under Bounded Rationality

Emilio Barucci (), Roberto Monte () and Roberto Renò
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Emilio Barucci: Universita di Pisa - Department of Economics
Roberto Monte: University of Rome Tor Vergata - Dipartimento di Studi Economici, Finanziari e Metodi quantitativi (SEFEMEQ)

CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We analyze the classical asset pricing model assuming non fully rational agents. Agents forecast future prices cum dividend through an adaptive learning rule. This assumption provides an explanation of some anomalies encountered in the empirical analysis of asset prices under full rationality: Returns are serially correlated (positively over a short horizon and negatively over a longer horizon) and the dividend yield predicts future returns (positive correlation). Considering the continuous time limit process, the same regularities are established analytically for price increments

Keywords: Asset Prices; Returns correlation; Bounded Rationality; Dividends; Diffusion Processes (search for similar items in EconPapers)
JEL-codes: C61 C62 D83 D84 E32 (search for similar items in EconPapers)
Pages: 22
Date: 2003-06-06
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Journal Article: Asset Price Anomalies under Bounded Rationality (2004)
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