Estimating Behavioural Heterogeneity Under Regime Switching

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

No 290, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

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 S&P500 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)
Pages: 32 pages
Date: 2011-05-01
References: Add references at CitEc
Citations: View citations in EconPapers (29)

Published as: Chiarella, C., He, X., Huang, W. and Zheng, H., 2012, "Estimating Behavioural Heterogeneity Under Regime Switching", Journal of Economic Behavior and Organization, 83(3), 446-460.

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https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp290.pdf (application/pdf)

Related works:
Journal Article: Estimating behavioural heterogeneity under regime switching (2012)
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