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Heterogeneous Gain Learning and Long Swings in Asset Prices

Author

Listed:
  • Blake LeBaron

    (International Business School, Brandeis University)

Abstract
This paper considers the impact of heterogeneous gain learning in an asset pricing model. A relatively stylized model is shown to generate persistent swings of asset prices from their fundamental values which replicates long range samples of U.S financial data. The detailed mechanisms of the learning models are then explored. Evidence suggests that agents' perceptions of risk and its dynamics and persistence are important in generating appropriate price/fundamental dynamics. Agents putting large amounts of weight on the recent past in their volatility models control a large fraction of wealth, and are important in perpetuating the volatility magnifying dynamics of the market.

Suggested Citation

  • Blake LeBaron, 2010. "Heterogeneous Gain Learning and Long Swings in Asset Prices," Working Papers 10, Brandeis University, Department of Economics and International Business School.
    • Handle: RePEc:brd:wpaper:10
    as

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    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP10.pdf
    File Function: First version, 2010
    Download Restriction: no
    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP10R.pdf
    File Function: Revised version, 2011
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    References listed on IDEAS

    as
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    Cited by:

    1. Branch, William A. & Evans, George W., 2013. "Bubbles, crashes and risk," Economics Letters, Elsevier, vol. 120(2), pages 254-258.
    2. Fischer, Thomas & Riedler, Jesper, 2014. "Prices, debt and market structure in an agent-based model of the financial market," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 95-120.
    3. Honkapohja, Seppo & Evans, George W., 2011. "Learning as a Rational Foundation for Macroeconomics and Finance," CEPR Discussion Papers 8340, C.E.P.R. Discussion Papers.
    4. George A. Waters, 2011. "Endogenous Rational Bubbles," Working Paper Series 20111003, Illinois State University, Department of Economics.

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