This paper develops a simulation-based solution method to solve large state space macrofinance models using machine learning. We use a neural network (NN) to approximate the expectations in the optimality conditions in the spirit of the stochastic parameterized expectations algorithm (PEA)....

We analyze the pricing of risky income streams in a world with competitive security markets where investors are constrained by restrictions on possible portfolio holdings. We investigate how we can transfer concepts and pricing techniques from a world without frictions to such a more realistic...

We study the trading of real assets financed by collateralized loans in an agent based model of a continuous double auction. This approach provides a complementary perspective on recent advances in the general equilibrium theory of endogenous leverage by studying a model that simultaneously...

This paper examines the main drawbacks of technical analysis. Although this is widely used by practitioners, from an academic perspective it can only be seen as a form of "voodoo finance". In particular, it runs into the following pitfalls: Subjectivity; Doubtful assumptions; Unjustified...

Recent survey evidence suggests that investors form beliefs about future stock returns by predominantly extrapolating their own experience: They overweight returns they have personally experienced while underweighting returns from earlier years and consequently expect high (low) stock market...

This paper introduces a multivariate pure-jump Lévy process which allows for skewness and excess kurtosis of single asset returns and for asymptotic tail dependence in the multivariate setting. It is termed Variance Compound Gamma (VCG). The novelty of my approach is that, by applying a...

With the help of two examples, we illustrate the usefulness of agent-based models as a tool for economic policy design. In our first example, we apply a financial market model in which the order flow of speculators, relying on technical and fundamental analysis, generates intricate price...

We analyze the theoretical moments of a nonlinear approximation to a model of business cycles and asset pricing with stochastic volatility and recursive preferences. We find that heteroskedastic volatility operationalizes a time-varying risk adjustment channel that induces variability in...

We document the empirical fact that asset prices in the consumption-goods and investment-goods sector behave almost identically in the US economy. In order to derive the cyclical behavior of the equity returns in these two sectors, we consider a standard two-sector real-business cycle model with...

This paper shows the importance of technological synergies among heterogeneous firms for aggregate fluctuations. First, we document six novel empirical facts using microdata that suggest the existence of important technological synergies between trading firms, the presence of positive...