A simple asymmetric herding model to distinguish between stock and foreign exchange markets
Alfarano, Simone and Franke, Reiner (2007) A simple asymmetric herding model to distinguish between stock and foreign exchange markets. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.07-).
WRAP_Alfarano_fwp07-01.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
Drawing on previous work of one of the authors, the paper takes an asymmetric variant of Kirman’s ant model and combines it with an elementary asset pricing mechanism. The closed-form solution of the equilibrium probability distribution allows the specification of a tractable likelihood function for daily returns, which is then employed to estimate the model’s behavioural parameters for a large pool of Japanese stocks. By way of Monte Carlo simulations it is found that most of these markets belong to the same class, which is characterized by a dominance of the stylized noise traders. In contrast, the model assigns a number of major foreign exchange markets to a different class, where on average the majority of agents follows the fundamentalist trading rule. Implications for the tail index are also worked out.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Stock markets -- Mathematical models, Probabilities, Foreign exchange rates -- Mathematical models, Monte Carlo method|
|Series Name:||Working papers (Warwick Business School. Financial Econometrics Research Centre)|
|Publisher:||Warwick Business School, Financial Econometrics Research Centre|
|Place of Publication:||Coventry|
|Official Date:||May 2007|
|Number of Pages:||39|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Sixth Framework Programme (European Commission) (FP6)|
|Grant number:||516446 (SFP)|
Alfarano, S. (2006), An Agent-Based Stochastic Volatility Model. Dissertation, University of Kiel.
Actions (login required)