Testing of a Market Fraction Model and Power-Law Behaviour in the Dax 30

Xuezhong (Tony) He () and Youwei Li

No 354, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper tests a simple market fraction asset pricing model with heterogeneous agents. By selecting a set of structural parameters of the model through a systematic procedure, we show that the autocorrelations (of returns, absolute returns and squared returns) of the market fraction model share the same pattern as those of the DAX 30. By conducting econometric analysis via Monte Carlo simulations, we characterize these power-law behaviours and find that estimates of the power-law decay indices, the (FI)GARCH parameters, and the tail index of the selected market fraction model closely match those of the DAX 30. The results strongly support the explanatory power of the heterogeneous agents models.

Keywords: asset pricing; fundamentalists and trend followers; (FI)GARCH, power-law; tail index (search for similar items in EconPapers)
JEL-codes: C15 D84 G12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Published as: He, X. and Li, Y., 2015, "Testing of a Market Fraction Model and Power-Law Behaviour in the Dax 30", Journal of Empirical Finance, 31, 1-17.

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https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp354.pdf (application/pdf)

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Journal Article: Testing of a market fraction model and power-law behaviour in the DAX 30 (2015)
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