Testing of a market fraction model and power-law behaviour in the DAX 30

He, Xue Zhong; Li, Youwei

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 agent models.

Citation

He, X. Z., & Li, Y. (2015). Testing of a market fraction model and power-law behaviour in the DAX 30. Journal of Empirical Finance, 31, 1-17. https://doi.org/10.1016/j.jempfin.2015.01.001

• Journal Article Type: Article
• Acceptance Date: Jan 9, 2015
• Online Publication Date: Jan 15, 2015
• Publication Date: 2015-03
• Deposit Date: Mar 19, 2019
• Journal: Journal of Empirical Finance
• Print ISSN: 0927-5398
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 31
• Pages: 1-17
• DOI: https://doi.org/10.1016/j.jempfin.2015.01.001
• Keywords: Asset pricing; Fundamentalists and trend followers; (FI)GARCH; Power-law; Tail index
• Public URL: https://hull-repository.worktribe.com/output/1113367
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S092753981500002X?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: Testing of a market fraction model and power-law behaviour in the DAX 30; Journal Title: Journal of Empirical Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jempfin.2015.01.001; Content Type: article; Copyright: Copyright © 2015 Elsevier B.V. All rights reserved.