Chiarella, C., He, X. and Zwinkels, R. (2014). Heterogeneous Expectations in Asset Pricing: Empirical Evidence from the S&P500 Journal of Economic Behavior and Organization, 105(September):1--16.
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Affiliated author
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Publication year2014
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JournalJournal of Economic Behavior and Organization
This paper empirically assesses heterogeneous expectations in asset pricing. We use a maximum likelihood approach on S\&P500 data to estimate a structural model. Our empirical results are consistent with a market populated with fundamentalists and chartists. In addition, agents switch between these groups conditional on their previous performance. The results imply that the model can explain the inflation and deflation of bubbles. Finally, the model is shown to be in the deterministically stable region, but produces stochastic bubbles of similar length and magnitude as empirically observed. {\textcopyright} 2014 Elsevier B.V.