Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5097952 | Journal of Economic Dynamics and Control | 2017 | 20 Pages |
Abstract
After showing that the distribution of the S&P 500's distortion, i.e. the log difference between its real stock market index and its real fundamental value, is bimodal, we demonstrate that agent-based financial market models may explain this puzzling observation. Within these models, speculators apply technical and fundamental analysis to predict asset prices. Since destabilizing technical trading dominates the market near the fundamental value, asset prices tend to be either overvalued or undervalued. Interestingly, the bimodality of the distribution of the S&P 500's distortion confirms an implicit prediction of a number of seminal agent-based financial market models.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Noemi Schmitt, Frank Westerhoff,