This paper empirically assesses heterogeneous expectations in asset pricing. We use a maximum likelihood approach on S&P500 data to estimate a structural model. Our empirical results are consistent with a market populated with fundamentalists and chartists. In addition, agents switch between these groups conditional on their previous performance. The results imply that the model can explain the inflation and deflation of bubbles. Finally, the model is shown to be in the deterministically stable region, but produces stochastic bubbles of similar length and magnitude as empirically observed.

Agent based models, Asset pricing, Fundamental analysis, Momentum trading, Technical analysis,
ERIM Top-Core Articles
Journal of Economic Behavior & Organization
Erasmus Research Institute of Management

Chiarella, C, He, X.-Z, & Zwinkels, R.C.J. (2014). Heterogeneous expectations in asset pricing: Empirical evidence from the S&P500. Journal of Economic Behavior & Organization, 105, 1–16. doi:10.1016/j.jebo.2014.03.003