Please use this identifier to cite or link to this item: https://doi.org/10.1016/j.jebo.2016.07.001
Title: Trading heterogeneity under information uncertainty
Authors: He, XZ
Zheng, H 
Keywords: G12
D53
D83
Information friction
Heterogeneity
Endogeneity
Stock returns
Stylized facts
Issue Date: 1-Oct-2016
Publisher: Elsevier BV
Citation: He, XZ, Zheng, H (2016-10-01). Trading heterogeneity under information uncertainty. Journal of Economic Behavior and Organization 130 (C) : 64-80. ScholarBank@NUS Repository. https://doi.org/10.1016/j.jebo.2016.07.001
Abstract: Instead of heuristical heterogeneity assumption in the current heterogeneous agent models (HAMs), we derive the trading heterogeneity by introducing information uncertainty about the fundamental value to a HAM. Conditional on their private information about the fundamental value, agents choose different trading strategies when optimizing their expected utilities. This provides a micro-foundation to heterogeneity and switching behavior of agents. We show that the HAM with trading heterogeneity originating from the incomplete information performs equally well, if not better than existing HAMs, in generating bubbles, crashes, and mean-reverting prices. The simulated time series matches with the S&P 500 in terms of power law distribution in returns, volatility clustering and long memory in volatility.
Source Title: Journal of Economic Behavior and Organization
URI: https://scholarbank.nus.edu.sg/handle/10635/193260
ISSN: 01672681
DOI: 10.1016/j.jebo.2016.07.001
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