Multi-period CAPM with Heterogeneous Agents

Hendri Adriaens (hendri@uvt.nl) and Bertrand Melenberg (b.melenberg@uvt.nl)
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Hendri Adriaens: Econometrics & Operations Research Tilburg University

No 163, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: This paper introduces a simulation model extending the well known Capital Asset Pricing Model by Sharpe and Lintner. Investors are modeled as multi-period forward looking portfolio optimizers. However, the future is not known \emph{a priori}, but has to be modeled and estimated. We allow agents to use past price information to forecast the future of asset returns, but with possibly different econometric forecasting techniques and different data sets. We use Microscopic Simulations to investigate the effects on equilibrium asset prices and on returns over an extended time period in a temporary equilibrium context. We show that models of this kind can reproduce key features of asset returns found in real life

Keywords: multiperiod CAPM; heterogeneous agents; price dependent preferences; microscopic simulations (search for similar items in EconPapers)
JEL-codes: C10 C68 G11 G12 (search for similar items in EconPapers)
Date: 2005-11-11
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