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Australian Professor Tony He Delivers A Series of Lectures on Financial Markets in Early March

Published: 2011-02-22

Lecture I: Volatility Clustering and the Power-Law Behavior in Financial Markets: A Market Fraction Model
Time: PM 2:00 ~ 4:00, March 2nd (Wednesday)
Location: Yingdong Building 217

Content Summary:

One of the most striking examples in the field of financial market research is the long range dependence in volatility, which involves many power layers. Recently, its characteristics have aroused attempts to study its internal mechanisms. In this lecture, He employs a stochastic market-fraction asset pricing model used by fundamentalists and trend followers to explain some of the key features of financial market behavior, such as market dominance, convergence to the fundamental price, and under- and overreaction. The dynamics of the underlying deterministic system is adopted to describe some characteristics and statistical properties, including the convergence of the limiting distribution and the autocorrelation structure. It is found that individual heterogeneity, risk-adjusted trend chasing through a geometry learning process, and the interactions among the noise, the demand process, and an underlying deterministic dynamics can lead to power-law distributed fluctuations. Statistics based on Monte Carlo simulations are used to analyze and describe the decay rate. The actual assessment of the power-law decay coefficient and (FI) GARCH parameters are conducted.

Lecture II: Market Efficiency and Moving Average Rules in Financial Markets
Time: AM 9:30 ~ 11:30, March 8th (Tuesday)
Location: Main Building 501

Content Summary:

Despite the pervasiveness of the effective market paradigm in financial academic journals, a variety of moving average (MA) trading rules are still prevalent among financial market practitioners. This lecture focuses on the latest development of stochastic dynamic financial market models in which fundamentalists and chartists create the demand for traded assets. The chartist demand is controlled by the difference between the current price and a certain long-term moving average. The models are in the form of either discrete-time or continuous-time. It has been found that a moving average is a source of market instability, and the interaction between the moving average and the market noise can cause a trend of long-term deviation of the market price from the fundamental. It has also been found that an increase in the memory length not only undermines the stability of the market price, characterized by a Hopf bifurcation, but also can stabilize an otherwise unstable market price, causing the stability conversion as the memory length increases. These findings reveal many phenomena of the market price; for instance, the coexistence of market efficiency and a chartist component, price resistance, long-range correlation, skewness and kurtosis of returns.



Lecture III: Heterogeneity, Market Mechanisms and Asset Price Dynamics
Time: PM 3:00 ~ 5:00, March 10th (Thursday)
Location: the rear Main Building 1610

Content Summary:

The boundedly rational heterogeneous agent (BRHA) models of financial markets will be discussed in this lecture, based on the review article by Chiarella, Dieci and He (2009) and on the contributions of the speaker and his co-authors in previous papers. The speaker will focus on the role of the market-clearing mechanism, the utility function of investors, the interaction of price and wealth dynamics, portfolio implications, the impact of stochastic factors on market dynamics, and the calibration of such models. BRHA models are nonlinear and stochastic due to the agents’ behavioral characteristics and market noise. The speaker will show that the BRHA models not only can produce both a locally stable fundamental equilibrium corresponding to that of standard paradigm, as well as an instability with a consequent rich range of possible complex behaviors characterized both indirectly by simulation or directly by stochastic bifurcations. A calibrated model can completely describe the stylized facts of the financial markets. Therefore, BRHA structure can accommodate those market characteristics which are difficult to coordinate in standard financial market paradigms, such as: fat tail, volatility clustering, large excursions from the fundamental and bubbles.

Speaker: Professor HE Xue-zhong (Tony He)

Introduction to the Speaker:

Professor HE Xue-zhong is a professor of the Department of Finance and Economy at the University of Technology, Sydney. He is the associate editor of the "Journal of Economic Interaction and Coordination" and "Discrete Dynamics in Nature and Society." Professor HE Xue-zhong serves as the member of the Financial Integrity Research Network, the Australian Research Council, a core member of the Quantitative Financial Research Center at the University of Technology, Sydney, a member of the Society for Computational Economics, and a member of the Economic Society of Australia. He has published a number of papers in internationally renowned economic and financial magazines such as "Quantitative Finance," "Macroeconomic Dynamics," "Asset Management," "Economic Dynamics and Control," "Economic Behavior and Organization," and "Euro Finance" and has coauthored more than ten books concerning the economy and finance. Professor He Xuezhong mainly focuses on the research of asset pricing under heterogeneous beliefs, bounded rationality, and non-linear dynamics in finance and economics.



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