Lof, Matthijs (2010): Heterogeneity in Stock Pricing: A STAR Model with Multivariate Transition Functions.
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Stock prices often diverge from measures of fundamental value, which simple present value models fail to explain. This paper tries to find causes for these long-run price movements and their persistence by estimating a STAR model for the price-earnings ratio of the S&P500 index for 1961Q1 - 2009Q3, with a transition function that depends on a wider set of exogenous or predetermined transition variables. Several economic, monetary and financial variables, as well as linear combinations of these, are found to have nonlinear effects on stock prices. A two-step estimation procedure is proposed to select the transition variables and estimate their weights. This STAR model can be interpreted as a heterogeneous agent asset pricing model that makes a distinction between chartists and fundamentalists, where the set of transition variables is included in the agents’ information set.
|Item Type:||MPRA Paper|
|Original Title:||Heterogeneity in Stock Pricing: A STAR Model with Multivariate Transition Functions|
|Keywords:||Heterogeneous agents, Regime switching, Stock prices, STAR models|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
|Depositing User:||Matthijs Lof|
|Date Deposited:||02. May 2011 23:51|
|Last Modified:||26. Feb 2013 08:11|
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