Heterogeneous expectations, exchange rate dynamics and predictability

Abstract

This paper proposes a simple chartist-fundamentalist model in which we allow for nonlinear time variation in chartists' extrapolation rate. Estimation of the model using monthly data for the major currencies vis-a-vis the US dollar shows that the model is significant in-sample and that it has out-of-sample predictive power for some of the currencies. We investigate the power of tests of the random walk model to detect predictability against the alternative of the proposed model. We find that the evidence of short-term unpredictability and the long-term predictability are consistent with our model

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

“…This is in stark contrast to the findings in Manzan and Westerhoff (2007). They find that fundamentalists play an increasingly stabilising role in the event of a larger misalignment of the exchange rate.…”

Structural stochastic volatility in asset pricing dynamics: Estimation and model contest

“…Defining a (moment-specific) bootstrapped p-value to quantify a model's goodness-of-fit, it turns out that roughly one-third of all simulation runs cannot be directly rejected by the data. On the other hand, the joint MCR amounts to more than 25 per cent, which we think is a fairly respectable order of 3 See Gilli and Winker (2003), Alfarano et al (2005), Manzan and Westerhoff (2007), Winker et al (2007), Boswijk et al (2007), Amilon (2008), Franke (2009), Li et al (2010), Chiarella et al (2011), Franke and Westerhoff (2011). 4 The choice of MSM does not rule out that also other estimation approaches may be tried.…”

Network Calibration and Metamodeling of a Financial Accelerator Agent Based Model

“…For instance, alternative taxonomies have been proposed which are at first sight not consistent with each other (Fagiolo et al, 2007;Brenner and Werker, 2007). On the other hand, a growing number of contributions tackle the issue of econometric estimation of agent-based models, although these exercises are exclusively confined to relatively simple models of financial markets Alfarano et al (2005); Manzan and Westerhoff (2007).…”