Financial markets are typically characterized by high (low) price level and low (high) volatility during boom (bust) periods, suggesting that price and volatility tend to move together with different market conditions/states. By proposing a simple heterogeneous agent model of fundamentalists and...

We develop a continuous-time asset price model to capture short-run momentum and long-run reversal. By studying a dynamic asset allocation problem, we derive the optimal investment strategy in closed form and show that the combined momentum and reversal strategies are optimal. We then estimate...

To capture the well documented time series momentum and reversal in asset price, we develop a continuous-time asset price model, derive the optimal investment strategy theoretically, and test the strategy empirically. We show that, by combining market fundamentals and timing opportunity with...

By incorporating behavioral sentiment to a model of limit order market, we show that behavioral sentiment not only helps to replicate most of the stylized facts simultaneously in limit order markets, but also plays a unique role in explaining these stylized facts that cannot be explained by...

This study investigates the impact of investor sentiment on excess equity return forecasting. A high (low) investor sentiment may weaken the connection between fundamental economic (behavioral-based non-fundamental) predictors and market returns. We find that although fundamental variables can...

This paper presents a stylized model of interaction among boundedly rational heterogeneousagents in a multi-asset financial market to examine how agents' impatience, extrapolation, andswitching behaviours can affect cross-section market stability. Besides extrapolation and performance based...