scholarly journals Analysing the behavioural finance impact of 'fake news' phenomena on financial markets: a representative agent model and empirical validation

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Bryan Fong
Keyword(s):  
Financial Markets ◽  
Event Study ◽  
Efficient Market Hypothesis ◽  
Empirical Validation ◽  
Fake News ◽  
Behavioural Finance ◽  
Representative Agent ◽  
Agent Model ◽  
Price Impacts ◽  
Representative Agent Model

AbstractThis paper proposes an original behavioural finance representative agent model, to explain how fake news’ empirical price impacts can persist in finance despite contradicting the efficient-market hypothesis. The model reconciles empirically-observed price overreactions to fake news with empirically-observed price underreactions to real news, and predicts a novel secondary impact of fake news: that fake news in a security amplifies underreactions to subsequent real news for the security. Evaluating the model against a large-sample event study of the 2019 Chinese ADR Delisting Threat fake news and debunking event, this paper finds strong qualitative validation for its model’s dynamics and predictions.

scholarly journals Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy

2009 ◽  
Vol 1 (2) ◽  
pp. 29-54 ◽  
Author(s):  
Sungbae An ◽  
Yongsung Chang ◽  
Sun-Bin Kim
Keyword(s):  
Time Series ◽  
Labor Supply ◽  
Optimality Conditions ◽  
Capital Markets ◽  
Real Wage ◽  
Heterogeneous Agents ◽  
Representative Agent ◽  
Heterogeneous Agent ◽  
Agent Model ◽  
Representative Agent Model

Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household requires preferences that are incompatible with economic priors. In order to reconcile theory with data, we construct a model with heterogeneous agents whose decisions are difficult to aggregate because of incomplete capital markets and the indivisible nature of labor supply. If we were to explain the model-generated aggregate time series using decisions of a stand-in household, such a household must have a nonconcave or unstable utility as is often found with the aggregate US data. (JEL E13, E24)

The Representative Agent Model

2020 ◽  
pp. 3-28
Author(s):  
Fernando de Holanda Barbosa ◽  
Luiz Antônio de Lima Junior
Keyword(s):  
Representative Agent ◽  
Agent Model ◽  
Representative Agent Model

IT internal control weaknesses and the market value of firms

2017 ◽  
Vol 30 (6) ◽  
pp. 964-986 ◽  
Author(s):  
John R. Kuhn ◽  
Bonnie Morris
Keyword(s):  
Financial Markets ◽  
Event Study ◽  
Internal Control ◽  
Small Businesses ◽  
Statistical Tests ◽  
Efficient Market Hypothesis ◽  
Multiple Time ◽  
Event Analysis ◽  
Content Type ◽  
It Systems

Purpose With computer technology fast becoming the engine that drives productivity, IT systems have become more pervasive in the daily operations of many businesses. Large, as well as small, businesses in the USA now rely heavily on IT systems to function effectively and efficiently. However, past studies have shown CEOs do not always understand how reliant their business is on IT systems. To the authors’ knowledge, no research has not yet examined if financial markets understand how IT affects the performance of businesses. The paper aims to discuss these issues. Design/methodology/approach In this study, the authors utilize the event study method to examine how financial markets interpret weaknesses in businesses IT systems. The authors examine this in the context of the Sarbanes-Oxley Act – Section 404 requirements and utilize the internal reporting requirement in the annual financial statement filing with the Securities Exchange Commission as a proxy to evaluate how the financial markets interpret IT weaknesses. Findings Using an event study, the authors show that the market does not necessarily understand and respond to the effects of IT weaknesses on overall financial performance of firms and thus challenge the efficient market hypothesis theory. Originality/value A second contribution is methodological in nature. IS researchers thus far have been using limited market benchmarks, statistical tests, and event windows in their respective event studies of market performance. This study shows shortcomings of that approach and the necessity of expanding usage of available event analysis tools. The authors show that using more than one market benchmark and statistical test across multiple time frames uncovers the effects that using a single benchmark and test over a single window would have overlooked.

GARP, SEPARABILITY, AND THE REPRESENTATIVE AGENT

2000 ◽  
Vol 4 (3) ◽  
pp. 324-342 ◽  
Author(s):  
Adrian R. Fleissig ◽  
Alastair R. Hall ◽  
John J. Seater
Keyword(s):  
Full Time ◽  
Representative Agent ◽  
Agent Model ◽  
Aggregate Consumption ◽  
Consumption Data ◽  
Time Periods ◽  
Separable Utility ◽  
Made In ◽  
Representative Agent Model

We examine whether annual, quarterly, and monthly U.S. aggregate consumption data could have been generated by a utility-maximizing representative agent with intertemporally separable utility. The model appears inapplicable over the full time periods covered by the NIPA data, which are the sample periods often used in the literature. The model does appear applicable, however, over long subsamples. The data also are inconsistent with separability assumptions routinely made in the literature. In particular, the main categories of consumption (nondurables, services, and durables) are not mutually separable. We consider the implications of our results for inference about consumption based on the representative-agent model.

Heterogeneous utility from a representative agent model: immigrants vs non-immigrants

2019 ◽  
Vol 46 (7) ◽  
pp. 1309-1318
Author(s):  
Kerk L. Phillips
Keyword(s):  
Steady State ◽  
Euler Equations ◽  
Design Methodology ◽  
Representative Agent ◽  
Heterogeneous Agent ◽  
Content Type ◽  
Agent Model ◽  
Dynamic General Equilibrium Model ◽  
Computational Resources ◽  
Representative Agent Model

Purpose The purpose of this paper is to infer the welfare of heterogeneous agents using a representative agent model. Design/methodology/approach It does so by partitioning the household into subunits and allocating consumption to each subunit proportionally to the income the subunit generates through wages and capital returns. Findings The author shows that for a simple dynamic general equilibrium model with immigration, the steady state utilities of these subunits correspond very closely to the utilities for an equivalent heterogeneous agent model. This is particularly true when labor–leisure decisions are made using slightly modified Euler equations. Originality/value More complicated models can be solved and simulated using fewer computational resources using this technique.

The Value of Information in Efficient Risk-Sharing Arrangements

2001 ◽  
Vol 91 (3) ◽  
pp. 509-524 ◽  
Author(s):  
Edward E Schlee
Keyword(s):  
Risk Sharing ◽  
Value Of Information ◽  
Welfare Effects ◽  
Competitive Markets ◽  
Representative Agent ◽  
Agent Model ◽  
Pure Exchange ◽  
Representative Agent Model

Suppose that agents share risks in competitive markets. We show that better information makes everyone worse off if the economy has a representative agent—that is, the economy's demand for state-contingent consumption equals the demand of a hypothetical agent who owns all the economy's wealth. The representative agent, moreover, is normatively unrepresentative: although each agent dislikes information, the “representative” agent is indifferent. Although we emphasize pure exchange, our results imply that a representative-agent model might seriously misstate the welfare effects of improved information in an economy with production and risk sharing, even if it performs well otherwise. (JEL D8)

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