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.
C. Chiarella, R. Dieci, X.-Z. He, K. Li (2013). An evolutionary CAPM under heterogeneous beliefs. ANNALS OF FINANCE, 9(2), 185-215 [10.1007/s10436-012-0215-0].
An evolutionary CAPM under heterogeneous beliefs
DIECI, ROBERTO;
2013
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
