A Heterogeneous Asset Pricing Model With Dynamic Investor Sentiment

1. University of Alabama Mathematics Box 870350 Tuscaloosa, AL 35487 (205) 348-5071 Colloquium Duo Wang Peking University, China November 15, 2012 3:15 pm. 302 Gordon Palmer Refreshments provided A Heterogeneous Asset Pricing Model With Dynamic Investor Sentiment Based on the heterogeneous asset pricing model with two types of traders given by Min Zheng (2007), we construct a heterogeneous asset pricing model with varying investor sentiment of chartists. Through the analysis on the discrete dynamic system, it is found that the stability of fundamental equilibrium point is determined by the intensity and balance of the activities of both types of traders. The overreaction of either of the traders leads to price fluctuation in long time. It is also found that the intensity of chartist’s sentiment does not affect the stability of the fundamental equilibrium point, but it does influence the stability of the bifurcations. The simulation on the corresponding stochastic model is successful to replicate some of the stylized facts in real financial market, including volatility clustering, skewness, excess kurtosis and long memory