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

He, Xue Zhong; Li, Youwei

Authors

Xue Zhong He



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.

Journal Article Type Article
Publication Date 2015-03
Journal Journal of Empirical Finance
Print ISSN 0927-5398
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 31
Pages 1-17
APA6 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
DOI https://doi.org/10.1016/j.jempfin.2015.01.001
Keywords Asset pricing; Fundamentalists and trend followers; (FI)GARCH; Power-law; Tail index
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.
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