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Stochastic equilibrium. Learning by exponential smoothing.

Pötzelberger, Klaus and Sögner, Leopold (2000) Stochastic equilibrium. Learning by exponential smoothing. Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science", 67. SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, Vienna.

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Abstract

This article considers three standard asset pricing models with adaptive agents and stochastic dividends. The models only differ in the parameters to be estimated. We assume that only limited information is used to construct estimators. Therefore, parameters are not estimated consistently. More precisely, we assume that the parameters are estimated by exponential smoothing, where past parameters are down-weighted and the weight of recent observations does not decrease with time. This situation is familiar for applications in finance. Even if time series of volatile stocks or bonds are available for a long time, only recent data is used in the analysis. In this situation the prices do not converge and remain a random variable. This raises the question how to describe equilibrium behavior with stochastic prices. However, prices can reveal properties such as ergodicity, such that the law of the price process converges to a stationary law, which provides a natural and useful extension of the idea of equilibrium behavior of an economic system for a stochastic setup. It is this implied law of the price process that we investigate in this paper. We provide conditions for the ergodicity and analyze the stationary distribution. (author's abstract)

Item Type: Paper
Keywords: artificial markets / bounded rationality / learning
Classification Codes: JEL D83, D84, G10
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Departments > Informationsverarbeitung u Prozessmanag. > Informationswirtschaft
Departments > Informationsverarbeitung u Prozessmanag. > Produktionsmanagement > Taudes
Departments > Marketing > Tourismus und Freizeitwirtschaft
Depositing User: Repository Administrator
Date Deposited: 29 Jan 2002 15:33
Last Modified: 16 Jun 2011 12:33
WU Online Catalog: http://onlinekatalog.wu.ac.at/F?func=find-b&reques...
URI: http://epub.wu.ac.at/id/eprint/1514

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