Estimation of financial agent-based models with simulated maximum likelihood

Authored by Jiri Kukacka, Jozef Barunik

Date Published: 2017

DOI: 10.1016/j.jedc.2017.09.006

Sponsors: European Union Czech Science Foundation

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

This paper proposes a general computational framework for empirical estimation of financial agent-based models, for which criterion functions have unknown analytical form. For this purpose, we adapt a recently developed nonparametric simulated maximum likelihood estimation based on kernel methods. In combination with the model developed by Brock and Hommes (1998), which is one of the most widely analysed heterogeneous agent models in the literature, we extensively test the properties and behaviour of the estimation framework, as well as its ability to recover parameters consistently and efficiently using simulations. Key empirical findings indicate the statistical insignificance of the switching coefficient but markedly significant belief parameters that define heterogeneous trading regimes with a predominance of trend following over contrarian strategies. In addition, we document a slight proportional dominance of fundamentalists over trend-following chartists in major world markets. (C) 2017 Elsevier B.V. All rights reserved.

Tags

Behavioral heterogeneity Interacting agents Heterogeneous agent model Heterogeneous beliefs Asset prices Housing-market Stock-prices Foreign-exchange market Estimation Simulated maximum likelihood Intensity of choice Switching Oil price dynamics Microstructure noise Speculators