Scandinavian Working Papers in Economics

Discussion Papers of Business and Economics,
University of Southern Denmark, Department of Business and Economics

No 1/2012: Nonlinear expectations in speculative markets - Evidence from the ECB survey of professional forecasters

Stefan Reitz (), Jan-Christoph Rülke and Georg Stadtmann ()
Additional contact information
Stefan Reitz: Institute for Quantitative Business and Economics Research, Postal: University of Kiel, Heinrich-Hecht-Platz 8, D-24118 Kiel, Germany
Jan-Christoph Rülke: Department of Economics, Postal: WHU - Otto Beisheim School of Management
Georg Stadtmann: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

Abstract: Chartist and fundamentalist models have proven to be capable of replicating stylized facts on speculative markets. In general, this is achieved by specifying nonlinear interactions of otherwise linear asset price expectations of the respective trader groups. This paper investigates whether or not regressive and extrapolative expectations themselves exhibit significant nonlinear dynamics. The empirical results are based on a new data set from the European Central Bank Survey of Professional Forecasters on oil price expectations. In particular, we find that forecasters form destabilizing expectations in the neighborhood of the fundamental value, whereas expectations tend to be stabilizing in the presence of substantial oil price misalignment.

Keywords: Agent based models; nonlinear expectations; survey data

JEL-codes: C33; D84; F31

38 pages, January 3, 2012

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