This paper shows that in financial markets with endogenous asset supply and demand, both rational and noise traders do coexist in the long run. The finding implies that financial markets are neither informationally nor allocationally efficient. While rational traders have a consistently higher...

A simple asset pricing model with two types of adaptively learning traders, fundamentalists and technical analysts, is studied. Fractions of these trader types, which are both boundedly rational, change over time according to evolutionary learning, with technical analysts conditioning their...

The goal of this paper is to assess, for the first time, the empirical impact of "Kaynes' beauty contest", or "higher order belief", on asset price volatility. The paper shows that heterogeneous expectations induce higher order beliefs and that heterogeneous expectation asset pricing models...

As early as 1934 Graham and Dodd conjectured that excess returns from value investment originate from a tendency of markets to converge towards fundamental values. This paper confirms their insights theoretically within the evolutionary finance model of Evstigneev, Hens, and Schenk-Hopp (2006)...

Stock picking is the field of financial analysis that is of particular interest for many professional investors and researchers. In this study stock picking is implemented via binary classification trees. Optimal tree size is believed to be the crucial factor in forecasting performance of the...

In this paper, we review the most common specifications of discrete-time stochasticvolatility (SV) models and illustrate the major principles of corresponding MarkovChain Monte Carlo (MCMC) based statistical inference. We provide a hands-on approachwhich is easily implemented in empirical...

In order to analyze the pricing of portfolio credit risk – as revealed by tranche spreadsof a popular credit default swap (CDS) index – we extract risk-neutral probabilities ofdefault (PDs) and physical asset return correlations from single-name CDS spreads. Thetime profile and overall level...

In recent years, credit risk has played a key role in risk management issues. Practitioners, academics and regulators have been fully involved in the process of developing, studying and analyzing credit risk models in order to find the elements which characterize a sound risk management system.(...)