## BERG working paper series

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#### Keywords

- Capital-Asset-Pricing Modell ; Mehragentensystem ; Volabilität ; Online-Publikation (1)
- Goods market, stock market, heterogeneous speculators, stability analysis, complex dynamics (1)
- Gütermarkt ; Aktienmarkt ; Börsenspekulation ; Dynamisches Modell ; Online-Publikation (1)
- Kreditmarkt ; Stochastisches Modell ; Online-Publikation (1)
- Kreditmarkt ; Wechselkurs ; Aktienanalyse ; Dynamisches Modell ; Online-Publikation (1)
- Method of simulated moments; moment coverage ratio; herding; discrete choice approach; transition probability approach. (1)
- Stock prices; exchange rates; market stability; technical and fundamental analysis; nonlinear market interactions; endogenous dynamics. (1)
- Structural stochastic volatility; method of simulated moments; autocorrelation pattern; fat tails; bootstrapped p-values (1)
- Wirtschaftspolitik ; Agency-Theorie ; Online-Publikation (1)
- bifurcation analysis (1)

#### Institute

- Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftspolitik (40) (remove)

- 83
- Why a Simple Herding Model May Generate the Stylized Facts of Daily Returns: Explanation and Estimation (2012)
- The paper proposes an elementary agent-based asset pricing model that, invoking the two trader types of fundamentalists and chartists, comprises four features: (i) price determination by excess demand; (ii) a herding mechanism that gives rise to a macroscopic adjustment equation for the market fractions of the two groups; (iii) a rush towards fundamentalism when the price misalignment becomes too large; and (iv) a stronger noise component in the demand per chartist trader than in the demand per fundamentalist trader, which implies a structural stochastic volatility in the returns. Combining analytical and numerical methods, the interaction between these elements is studied in the phase plane of the price and a majority index. In addition, the model is estimated by the method of simulated moments, where the choice of the moments reflects the basic stylized facts of the daily returns of a stock market index. A (parametric) bootstrap procedure serves to set up an econometric test to evaluate the model’s goodness-of-fit, which proves to be highly satisfactory. The bootstrap also makes sure that the estimated structural parameters are well identified.

- 84
- Interactions between the real economy and the stock market (2012)
- We develop a simple behavioral macro model to study interactions between the real economy and the stock market. The real economy is represented by a Keynesian goods market approach while the setup for the stock market includes heterogeneous speculators. Using a mixture of analytical and numerical tools we find, for instance, that speculators may create endogenous boom-bust dynamics in the stock market which, by spilling over into the real economy, can cause lasting fluctuations in economic activity. However, fluctuations in economic activity may, by shaping the firms’ fundamental values, also have an impact on the dynamics of the stock market.

- 79
- On the inherent instability of international financial markets: natural nonlinear interactions between stock and foreign exchange markets (2013)
- We develop a novel financial market model in which the stock markets of two countries are linked via and with the foreign exchange market. To be precise, there are domestic and foreign speculators in each of the two stock markets which rely either on linear technical or linear fundamental trading strategies to determine their orders. Since foreign stock market speculators require foreign currency to conduct their trades, all three markets are connected. Our setup entails a natural nonlinearity which may cause persistent endogenous price dynamics. Moreover, we analytically show that market interactions can destabilize the model’s fundamental steady state.

- 78
- Structural Stochastic Volatility in Asset Pricing Dynamics: Estimation and Model Contest (2013)
- In the framework of small-scale agent-based financial market models, the paper starts out from the concept of structural stochastic volatility, which derives from different noise levels in the demand of fundamentalists and chartists and the time-varying market shares of the two groups. It advances several different specifications of the endogenous switching between the trading strategies and then estimates these models by the method of simulated moments (MSM), where the choice of the moments reflects the basic stylized facts of the daily returns of a stock market index. In addition to the standard version of MSM with a quadratic loss function, we also take into account how often a great number of Monte Carlo simulation runs happen to yield moments that are all contained within their empirical confidence intervals. The model contest along these lines reveals a strong role for a (tamed) herding component. The quantitative performance of the winner model is so good that it may provide a standard for future research.

- 68
- Effects of inflation expectations on macroeconomic dynamics: extrapolative versus regressive expectations (2014)
- In this paper we integrate heterogeneous inflation expectations into a simple monetary model. Guided by empirical evidence we assume that boundedly rational agents, selecting between extrapolative and regressive forecasting rules to predict the future inflation rate, prefer rules that have produced low prediction errors in the past. We show that integrating this behavioral expectation formation process into the monetary model leads to the possibility of endogenous macroeconomic dynamics. For instance, our model replicates certain empirical regularities such as irregular growth cycles or inflation persistence. Moreover, we observe multi-stability via a Chenciner bifurcation.