Heterogeneous speculators, endogenous fluctuations and interacting markets: A model of stock prices and exchange rates

Dieci, Roberto; Westerhoff, Frank

doi:10.1016/j.jedc.2009.11.002

Cited by 71 publications

(48 citation statements)

References 42 publications

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“…The model is also empirically validated and has successfully been used for policy analysis. For alternative models compare Dieci and Westerhoff (2010) or Tramontana et al (2013). An interesting example on a much debated policy issue can be found in Westerhoff and Dieci (2006).…”

Section: Financial Sectormentioning

confidence: 99%

Optimal monetary policy in a new Keynesian model with animal spirits and financial markets

Lengnick

Wohltmann

2016

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may University of KielHans-Werner Wohltmann * * University of Kiel AbstractThis paper relates to the literature on macro-finance-interaction models. We modify the boundedly rational New Keynesian model of De Grauwe (2010a) using a completely microfounded IS equation, and combine it with the agent-based financial market model of Westerhoff (2008). For this purpose we derive four interactive channels between the financial and real sector where two channels are strictly microfounded. We analyze the impact of the different channels on economic stability and derive optimal (simple) monetary policy rules. We find that coefficients of optimal simple Taylor rules do not significantly change if financial market stabilization becomes part of the central bank's objective function. Additionally, we show that rule-based, backward-looking monetary policy creates huge instabilities if expectations are boundedly rational.JEL classification: E03, E5, G02

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Section: Financial Sectormentioning

confidence: 99%

Optimal monetary policy in a new Keynesian model with animal spirits and financial markets

Lengnick

Wohltmann

2016

Journal of Economic Dynamics and Control

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“…In contrast, Lux (1998) allows both the comparison of ex post profitability as well as contagion to induce switching between different trading rules. A third explanation for switching between strategies is given by Dieci and Westerhoff (2010), who assume that all traders are familiar with both technical and fundamental trading rules, and opt for one of them based on the expected future performance rather than the ex post performance. According to this view, the agents tend to move from chartist to fundamental strategies when the deviation between fundamental value and exchange rate becomes large.…”

Section: Literature and Hypothesesmentioning

confidence: 99%

Exchange rate expectations of chartists and fundamentalists

Dick

Menkhoff

2013

Journal of Economic Dynamics and Control

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical SummaryThe present study compares exchange rate expectations of "chartists" and "fundamentalists." "Chartists" are those financial market participants who base their forecasts and actions on past price movements of their asset (here: a currency). "Fundamentalists," on the other hand, are financial market participants who base their forecasts and actions on economic models.Various studies give empirical evidence for the presence of chartists and fundamentalists in FX markets. Expectation formation of exchange rate forecasters per se has also been studied from various perspectives in the literature. Our study, however, goes beyond previous research, as it is the first to explicitly connect the two strands of literature: how exactly do professional analysts, who claim to be either chartists or fundamentalists, make their respective exchange rate forecasts?Our study is divided into three parts. In a first step, we analyze chartists' and fundamentalists' forecast behavior. Models including chartists and fundamentalists often make specific assumptions about these two groups. Our research can help verify these assumptions. In a second step, we model forecast dynamics caused by changes in forecasting strategies and identify the factors motivating a change in strategy. Theoretical models with chartists and fundamentalists suppose that chartists do not systematically perform worse than fundamentalists (as would be expected in efficient markets). Therefore, in a third step, we investigate forecasting performance, i.e. whether chartists' forecasts may be used as the basis for profitable trading strategies in the same manner as fundamentalists'.In order to address this question, we combine two data sets. One is a set of micro data consisting of monthly USD/EUR forecasts made by professional analysts starting with the introduction of the Euro. Our second data set comprises information on the self-assessment of almost 400 of these professional analysts, i.e., on the degree to which they claim to rely on fundamental analysis or chart analysis to make their forecasts. The combination of the two data sets allows us to put analysts' selfassessment and their actual forecasts into context. Our panel comprises more than 30,000 observations over the course of 153 months.Our results confirm relevant assumptions made in chartist-fundamentalist models: Chartists follow trends more often than fundamentalists and change the direction of their forecasts more often. However, th...

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“…It is shown that this activity might be a source of complexity in the market. Dieci and Westerho¤ (2010) build up a three-market model in which two stock markets are linked via foreign exchange market.…”

Section: Introductionmentioning

confidence: 99%

Estimating heterogeneous agents behavior in a two-market financial system

Chen

Huang

Zheng

2017

J Econ Interact Coord

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In this paper, we propose a two-market empirical model with heterogeneous agents based on Chiarella et al. (2012). Using monthly data of French and US stock markets, the regression shows that individual markets have feature of two-regime switching process. By including inter-market traders whose trading decision is based on fundamental value of foreign market, the two-market model has a better capability in explaining both markets with domestic fundamental traders turning to be significant. The existence of inter-market traders implies that the two markets impact each other through their fundamental and hence share some common set of factors, which provides foundation of market interactions, such as market co-movement. In this paper, we propose a two-market empirical model with heterogeneous agents based on Chiarella et al. (2012). Using monthly data of French and US stock markets, the regression shows that individual markets have feature of two-regime switching process. By including inter-market traders whose trading decision is based on fundamental value of foreign market, the two-market model has a better capability in explaining both markets with domestic fundamental traders turning to be signi…cant. The existence of inter-market traders implies that the two markets impact each other through their fundamental and hence share some common set of factors, which provides foundation of market interactions, such as market co-movement. Terms of use: Documents in Keywords

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Heterogeneous speculators, endogenous fluctuations and interacting markets: A model of stock prices and exchange rates

Cited by 71 publications

References 42 publications

Optimal monetary policy in a new Keynesian model with animal spirits and financial markets

Optimal monetary policy in a new Keynesian model with animal spirits and financial markets

Exchange rate expectations of chartists and fundamentalists

Estimating heterogeneous agents behavior in a two-market financial system

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