Estimation of an agent-based model of investor sentiment formation in financial markets
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http://dx.doi.org/10.1016/j.jedc.2012.03.012 |
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Title
Estimation of an agent-based model of investor sentiment formation in financial marketsAuthor (s)
Date
2012Publisher
ElsevierISSN
0165-1889Bibliographic citation
Journal of Economic Dynamics and Control Volume 36, Issue 8, August 2012, Pages 1284–1302 Quantifying and Understanding Dysfunctions in Financial MarketsType
info:eu-repo/semantics/articlePublisher version
http://www.sciencedirect.com/science/article/pii/S016518891200084XSubject
Abstract
We use weekly survey data on short-term and medium-term sentiment of German investors to estimate the parameters of a stochastic model of opinion formation governed by social interactions. The bivariate nature of our ... [+]
We use weekly survey data on short-term and medium-term sentiment of German investors to estimate the parameters of a stochastic model of opinion formation governed by social interactions. The bivariate nature of our data set also allows us to explore the interaction between the two hypothesized opinion formation processes, while consideration of the simultaneous weekly changes of the stock index DAX enables us to study the influence of sentiment on returns. Technically, we extend the maximum likelihood framework for parameter estimation in agent-based models introduced by Lux (2009a) by generalizing it to bivariate and tri-variate settings. As it turns out, our results are consistent with strong social interaction in short-run sentiment. While one observes abrupt changes of mood in short-run sentiment, medium-term sentiment is a more slowly moving process in which the influence of social interaction seems to be less pronounced. The tri-variate model entails a significant effect from short-run sentiment on prices in-sample, but its out-of-sample predictive performance does not beat the random walk benchmark. [-]
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Journal of Economic Dynamics and Control, 2012, Vol. 36, Num. 8. Quantifying and Understanding Dysfunctions in Financial MarketsRights
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