Statistical Properties of a Heterogeneous Asset Price Model with Time-Varying Second Moment

Carl Chiarella, Xuezhong (Tony) He () and Duo Wang

No 142, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: Stability and bifurcation analysis of deterministic systems has been widely used in modeling financial markets. However, the impact of such dynamic phenomena on various statistical properties of the corresponding stochastic model, including skewness and excess kurtosis, various autocorrelation (AC) patterns of under and over reactions, and volatility clustering characterised by the long-range dependence of ACs, is not clear and has been very little studied. This paper aims to study this issue. Through a simple behavioural asset pricing model with fundamentalists and chartists, we examine the statistical properties of the model and their connection to the dynamics of the underlying deterministic model. In particular, our analysis leads to some insights into the type of mechanism that may be generating some of the stylised facts, such as fat tails, skewness, high kurtosis and long memory, observed in high frequency financial data.

Keywords: fundamentalists; chartists, stability; bifurcation; investors' under- and over-reactions; stylized facts (search for similar items in EconPapers)
JEL-codes: C60 D83 D84 E21 E32 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2004-11-01
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-ecm, nep-fin, nep-mac, nep-mic and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as: Chiarella, C., He, X. and Wang, D., 2006, "Statistical Properties of a Heterogeneous Asset Price Model with Time-Varying Second Moment", In: The Complex Networks of Economic Interactions, Volume 567 of the series Lecture Notes in Economics and Mathematical Systems, 109-123.

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