Nonlinear expectations in speculative markets - Evidence from the ECB survey of professional forecasters

Authored by Stefan Reitz, Jan-Christoph Ruelke, Georg Stadtmann

Date Published: 2012-09

DOI: 10.1016/j.jedc.2012.02.007

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Chartist and fundamentalist models have proven to be capable of replicating stylized facts on speculative markets. In general, this is achieved by specifying nonlinear interactions of otherwise linear asset price expectations of the respective trader groups. This paper investigates whether or not regressive and extrapolative expectations themselves exhibit significant nonlinear dynamics. The empirical results are based on a new data set from the European Central Bank Survey of Professional Forecasters on oil price expectations. In particular, we find that forecasters form destabilizing expectations in the neighborhood of the fundamental value, whereas expectations tend to be stabilizing in the presence of substantial oil price misalignment. (c) 2012 Elsevier B.V. All rights reserved.

Tags

Agent based models Survey data Nonlinear expectations