Fear or fundamentals? Heterogeneous beliefs in the European sovereign CDS market

Estimation of financial agent-based models with simulated maximum likelihood

“…Barunik and Kukacka (2015) Cusp RV/ML Asymmetry and bifurcation factors/Polynomial data approximation Bolt et al (2011) ABS NLS(?) Expectations' bias/Discount factor/Belief coe cients/Intensity of choice Bolt et al (2014) ABS NLS Belief coe cients/A-synchronous updating ratio/Intensity of choice Cornea et al (2013) A B S V A R / N L S F u n d a m e n t a l i s t s ' b e l i e f c o e c i e n t / I n t e n s i t y o f c h o i c e Chen and Lux (2015) IAH MSM Standard deviation of innovations/Herding tendency Chiarella et al (2014) ABS QML Belief & market maker coe cients/Memory decay rate/Intensity of choice Chiarella et al (2015) ABS QML Belief coe cients/Variance risk premium/Intensity of choice de Jong et al (2009a) A B S M L B e l i e f c o e c i e n t s / I n t e n s i t y o f c h o i c e ter Ellen and Zwinkels (2010) A B S Q M L B e l i e fc o e c i e n t s / I n t e n s i t yo fc h o i c e ter Ellen et al (2013) ABS OLS/NLS Behavioural rules/Intensity of choice Franke (2009) ABS MSM Reaction coe cients/Switching threshold Frijns et al (2010) A B S E M S L o c a l v o l a t i l i t y / B e l i e f c o e c i e n t s / I n t e n s i t y o f c h o i c e Franke and Westerho↵ (2011) IAH MSM Behavioural rules/Flexibility/Predisposition coe cients Franke and Westerho↵ (2012) ABS/IAH MSM Behavioural rules/Wealth/Predisposition/Misalignment coe cients Ghonghadze and Lux (2015) IAH GMM Standard deviation of innovations/Herding tendency Grazzini et al (2013) Bass (1969) ML, MSM Probability of independent adoption/Peer pressure/Population size Grazzini and Richiardi (2015) -S M D - Goldbaum and Zwinkels (2014) ABS OLS (iterative) Belief coe cients Hommes and Veld (2015) ABS NLS(?) Belief coe cients/A-synchronous updating ratio(?…”

Heterogeneous Beliefs and Asset Price Dynamics: A Survey of Recent Evidence

“…Not much later, Winker and Gilli (2001) and Gilli and Winker (2003) also for less obvious asset classes, such as oil (ter Ellen and Zwinkels, 2010), housing (Kouwenberg and Zwinkels, 2014), gold (Baur and Glover, 2014), options (Frijns et al, 2010), hedge funds (Schauten et al, 2015), and credit markets (Chiarella et al, 2015).…”

“…They estimate a similar model, but with time-variation in fundamentalists beliefs, in Reitz and Westerhoff (2007) for cotton, lead, rice, soybeans, sugar and zinc, and find that for these commodities, fundamentalists play a stabilising role when the misalignment is sizable enough. Chiarella et al (2015) analyse the large deviations from fundamental levels of credit risk for some European countries during the European sovereign debt crisis and find that these can be partly explained by a combination of increased global risk aversion and the dynamics between momentum traders (chartists) and fundamentalists. Although the increase in credit spreads for peripheral European countries during the sovereign debt crisis was initially caused by deteriorating fundamentals, a large part of the surge can be explained by momentum traders further extrapolating these trends of higher CDS spreads.…”

Comparing Behavioural Heterogeneity Across Asset Classes

“…Various versions of the model, with varying numbers and types of agents, different profit and/or switching functions, and varying results, have been estimated successfully on a large number of asset classes. Especially stock markets (Boswijk et al, 2007;Hommes and in 't Veld, 2017;Chiarella et al, 2014;Lof, 2014) and foreign exchange markets (Frankel and Froot, 1990;De Jong et al, 2010;Spronk et al, 2013) have been extensively analyzed, but the model has also showed itself useful in explaining the price dynamics in, for instance, housing markets (Kouwenberg and Zwinkels, 2014;Bolt et al, 2014), option markets (Frijns et al, 2010), commodity markets (ter Ellen and Zwinkels, 2010;Baur and Glover, 2014;Westerhoff and Reitz, 2005), and credit markets (Chiarella et al, 2015). Even macro-economic variables such as inflation can be described by a heterogeneous agent model, as in Cornea-Madeira et al (2017) 1 .…”