How Does Dynamic Investor Sentiment Affect Asset Prices
Speaker:Prof. Duo Wang
Professor
School of Financial Mathematics
Peking University
Date & Time:2 Jan 2013 (Wednesday) 11:00 - 12:00
Venue:JM23
Organized by:Department of Mathematics

Abstract

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 type 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.

Biography

Professor Duo Wang is a professor at School of Financial Mathematics, Peking University, China. His research interests include ordinary differential equations, normal form and bifurcation of dynamical systems, and financial dynamics. Prof. Wang acted as chairman and professor of Department of Financial Mathematics, Peking University, China, from 1997 to 2003. He joined the South China Normal University as Invited Professor since 2008. He published one book and more than 50 journal papers since 1983.