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Dynamic Asset Pricing and Portfolio Decision Rules under Heterogeneous Expectations and Adaptive Learning in Continuous Time

Funding: 2007: $115,000
2008: $120,000
2009: $165,000

Project Member(s): He, X.

Funding or Partner Organisation: Australian Research Council (ARC Discovery Projects)

Start year: 2007

Summary: This project will seek to capture the reality of financial markets by analysing optimal dynamic portfolio strategies and asset pricing relationships when investors have heterogeneous expectations of future evolution of asset returns, and adopt evolutionary trading strategies. Such characteristics typify the modern economy that is populated by investors whose trading strategies are the outcome of different expectations and evolve according to market outcomes. Market data will be used to quantify the manner in which these heterogeneous characteristics cause portfolio allocation rules and equilibrium asset pricing relationships to differ from those based on classical dynamic portfolio optimisation theory where all investors are homogeneous.

Publications:

He, XZ & Zheng, H 2016, 'Trading heterogeneity under information uncertainty', Journal of Economic Behavior and Organization, vol. 130, pp. 64-80.
View/Download from: UTS OPUS or Publisher's site

He, X, Shi, L & Zheng, M 2012, 'Asset Pricing Under Keeping Up With the Joneses and Heterogeneous Beliefs', SSRN.

Chiarella, C, Flaschel, P, Franke, R & Semmler, W 2009, Financial Markets and the Macroeconomy: A Keynesian Perspective, 1, Routledge, USA.
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Keywords: portfolio optimisation, quantitative finance, stochastic optimal control, heterogeneous agent economics, asset price dynamics, nonlinear filtering,

FOR Codes: Finance, Banking, Finance and Investment not elsewhere classified, Stochastic Analysis and Modelling, Finance and investment services, Banking, Finance and Investment not elsewhere classified