This paper proposes a macroeconometric analysis to depict and measure possible financial cycles that emerge due to the dynamic interaction between heterogeneous market participants. We consider two-type heterogeneous speculative agents: Trend followers tend to follow the price trend while contrarians go against the wind. As agents' beliefs are unobserved variables, we construct a state-space model where heuristics are considered as unobserved state components and from which the conditions for endogenous cycles can be mathematically derived and empirically tested. Further, we speci¯cally measure the length of endogenous ¯nancial cycles. The model is estimated using the equity price index for the 1960–2020 period for the UK, France, Germany, Italy, Ireland, and the USA. We ¯nd empirical evidence of endogenous ¯nancial cycles for all countries, with the highest frequencies in the USA and the UK.
Gusella, F., DETECTING AND MEASURING FINANCIAL CYCLES IN HETEROGENEOUS AGENTS MODELS: AN EMPIRICAL ANALYSIS, <<ADVANCES IN COMPLEX SYSTEM>>, 2022; 25 (02n03): N/A-N/A. [doi:10.1142/s0219525922400021] [https://hdl.handle.net/10807/293216]
DETECTING AND MEASURING FINANCIAL CYCLES IN HETEROGENEOUS AGENTS MODELS: AN EMPIRICAL ANALYSIS
Gusella, Filippo
2022
Abstract
This paper proposes a macroeconometric analysis to depict and measure possible financial cycles that emerge due to the dynamic interaction between heterogeneous market participants. We consider two-type heterogeneous speculative agents: Trend followers tend to follow the price trend while contrarians go against the wind. As agents' beliefs are unobserved variables, we construct a state-space model where heuristics are considered as unobserved state components and from which the conditions for endogenous cycles can be mathematically derived and empirically tested. Further, we speci¯cally measure the length of endogenous ¯nancial cycles. The model is estimated using the equity price index for the 1960–2020 period for the UK, France, Germany, Italy, Ireland, and the USA. We ¯nd empirical evidence of endogenous ¯nancial cycles for all countries, with the highest frequencies in the USA and the UK.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.