An evolutionary CAPM under heterogeneous beliefs

Chiarella, C; Dieci, R; He, XZ; Li, K

An evolutionary CAPM under heterogeneous beliefs

Chiarella, C Dieci, R He, XZ

Li, K

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Publication Type:: Journal Article
Citation:: Annals of Finance, 2013, 9 (2), pp. 185 - 215
Issue Date:: 2013-01-01

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Field	Value	Language
dc.contributor.author	Chiarella, C	en_US
dc.contributor.author	Dieci, R	en_US
dc.contributor.author	He, XZ https://orcid.org/0000-0003-1446-9996	en_US
dc.contributor.author	Li, K	en_US
dc.date.issued	2013-01-01	en_US
dc.identifier.citation	Annals of Finance, 2013, 9 (2), pp. 185 - 215	en_US
dc.identifier.issn	1614-2446	en_US
dc.identifier.uri	http://hdl.handle.net/10453/26140
dc.description.abstract	Heterogeneity and evolutionary behaviour of investors are two of the most important characteristics of financial markets. This paper incorporates the adaptive behaviour of agents with heterogeneous beliefs and establishes an evolutionary capital asset pricing model (ECAPM) within the mean-variance framework. We show that the rational behaviour of agents switching to better-performing trading strategies can cause large deviations of the market price from the fundamental value of one asset to spill over to other assets. Also, this spill-over effect is associated with high trading volumes and persistent volatility characterized by significantly decaying autocorrelations of, and positive correlation between, price volatility and trading volume. © 2012 Springer-Verlag Berlin Heidelberg.	en_US
dc.relation	http://purl.org/au-research/grants/arc/DP110104487
dc.relation.ispartof	Annals of Finance	en_US
dc.relation.isbasedon	10.1007/s10436-012-0215-0	en_US
dc.subject.classification	Finance	en_US
dc.title	An evolutionary CAPM under heterogeneous beliefs	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	9	en_US
utslib.for	1502 Banking, Finance and Investment	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	closed_access
pubs.issue	2	en_US
pubs.publication-status	Published	en_US
pubs.volume	9	en_US

Abstract:

Heterogeneity and evolutionary behaviour of investors are two of the most important characteristics of financial markets. This paper incorporates the adaptive behaviour of agents with heterogeneous beliefs and establishes an evolutionary capital asset pricing model (ECAPM) within the mean-variance framework. We show that the rational behaviour of agents switching to better-performing trading strategies can cause large deviations of the market price from the fundamental value of one asset to spill over to other assets. Also, this spill-over effect is associated with high trading volumes and persistent volatility characterized by significantly decaying autocorrelations of, and positive correlation between, price volatility and trading volume. © 2012 Springer-Verlag Berlin Heidelberg.

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http://hdl.handle.net/10453/26140