Heterogeneity, convergence, and autocorrelations

He, XZ; Li, Y

Heterogeneity, convergence, and autocorrelations

He, XZ

Li, Y

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Publication Type:: Journal Article
Citation:: Quantitative Finance, 2008, 8 (1), pp. 59 - 79
Issue Date:: 2008-02-01

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Field	Value	Language
dc.contributor.author	He, XZ https://orcid.org/0000-0003-1446-9996	en_US
dc.contributor.author	Li, Y https://orcid.org/0000-0002-2142-7607	en_US
dc.date.issued	2008-02-01	en_US
dc.identifier.citation	Quantitative Finance, 2008, 8 (1), pp. 59 - 79	en_US
dc.identifier.issn	1469-7688	en_US
dc.identifier.uri	http://hdl.handle.net/10453/10138
dc.description.abstract	This paper is a contribution to the literature on the explanatory power and calibration of heterogeneous asset pricing models. We set out a new stochastic market-fraction asset pricing model of fundamentalists and trend followers under a market maker. Our model explains key features of financial market behaviour such as market dominance, convergence to the fundamental price and under- and over-reaction. We use the dynamics of the underlying deterministic system to characterize these features and statistical properties, including convergence of the limiting distribution and autocorrelation structure. We confirm these properties using Monte Carlo simulations.	en_US
dc.relation.ispartof	Quantitative Finance	en_US
dc.relation.isbasedon	10.1080/14697680601159500	en_US
dc.subject.classification	Finance	en_US
dc.title	Heterogeneity, convergence, and autocorrelations	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	8	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	01 Mathematical Sciences	en_US
utslib.for	14 Economics	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	8	en_US

Abstract:

This paper is a contribution to the literature on the explanatory power and calibration of heterogeneous asset pricing models. We set out a new stochastic market-fraction asset pricing model of fundamentalists and trend followers under a market maker. Our model explains key features of financial market behaviour such as market dominance, convergence to the fundamental price and under- and over-reaction. We use the dynamics of the underlying deterministic system to characterize these features and statistical properties, including convergence of the limiting distribution and autocorrelation structure. We confirm these properties using Monte Carlo simulations.

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http://hdl.handle.net/10453/10138