The Adaptiveness in Stock Markets: Testing the Stylized Facts in the DAX 30

39 Pages Posted: 28 Sep 2015

See all articles by Xuezhong He

Xuezhong He

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network (FIRN)

Youwei Li

Hull University Business School

Date Written: September 27, 2015

Abstract

By testing a simple asset pricing model of heterogeneous agents to characterize the power-law behavior of the DAX 30 from 1975 to 2007, we provide supporting evidence on empirical findings that investors and fund managers use combinations of fixed and switching strategies based on fundamental and technical analysis when making investment decisions. By conducting econometric analysis via Monte Carlo simulations, we show that the autocorrelation patterns, the estimates of the power-law decay indices, (FI)GARCH parameters, and tail index of the model match closely the corresponding estimates for the DAX 30. A mechanism analysis based on the calibrated model provides further insights into the explanatory power of heterogeneous agent models.

Keywords: Adaptiveness, fundamental and technical analysis, stylized facts, power-law, tail index

JEL Classification: C15, D84, G12

Suggested Citation

He, Xue-Zhong 'Tony' and Li, Youwei, The Adaptiveness in Stock Markets: Testing the Stylized Facts in the DAX 30 (September 27, 2015). Available at SSRN: https://ssrn.com/abstract=2666231 or http://dx.doi.org/10.2139/ssrn.2666231

Xue-Zhong 'Tony' He

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Youwei Li (Contact Author)

Hull University Business School ( email )

University of Hull
Hull, HU6 7RX
United Kingdom

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