Asset Price Anomalies Under Bounded Rationality

22 Pages Posted: 6 Jun 2003  

Emilio Barucci

University of Pisa - Department of Economics

Roberto Monte

University of Rome Tor Vergata - Dipartimento di Studi Economici, Finanziari e Metodi quantitativi (SEFEMEQ)

Roberto Renò

University of Verona - Department of Economics

Date Written: June 2003

Abstract

We analyze the classical asset pricing model assuming non fully rational agents. Agents forecast future prices cum dividend through an adaptive learning rule. This assumption provides an explanation of some anomalies encountered in the empirical analysis of asset prices under full rationality: Returns are serially correlated (positively over a short horizon and negatively over a longer horizon) and the dividend yield predicts future returns (positive correlation). Considering the continuous time limit process, the same regularities are established analytically for price increments.

Keywords: Asset Prices, Returns correlation, Bounded Rationality, Dividends, Diffusion Processes

JEL Classification: C61, C62, D83, D84, E32

Suggested Citation

Barucci, Emilio and Monte, Roberto and Renò, Roberto, Asset Price Anomalies Under Bounded Rationality (June 2003). CEIS Tor Vergata Research Paper Series No. 19. Available at SSRN: https://ssrn.com/abstract=414080 or http://dx.doi.org/10.2139/ssrn.414080

Emilio Barucci (Contact Author)

University of Pisa - Department of Economics ( email )

via Ridolfi 10
I-56100 Pisa, PI 56100
Italy

Roberto Monte

University of Rome Tor Vergata - Dipartimento di Studi Economici, Finanziari e Metodi quantitativi (SEFEMEQ) ( email )

Via Columbia n.2
Roma, 00133
Italy

Roberto Renò

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
37129 Verona
Italy

Paper statistics

Downloads
271
Rank
91,015
Abstract Views
2,264