Weihong Huang

Financial crises and interacting heterogeneous agents

In this paper we examine various types of financial crises and conjecture their underlying mechanisms using a deterministic heterogeneous agent model (HAM). In a market-maker framework, forward-looking investors update their price expectations according to psychological trading windows and cluster themselves strategically to optimize their expected profits. The switches between trading strategies lead to price dynamics in market that subsequently move price up and down, and in the extreme case, cause financial crises. The model suggests that both fundamentalists and chartists could potentially contribute to the financial crises.

Testing for spurious and cointegrated regressions: A wavelet approach

This paper proposes a wavelet-based approach to analyze spurious and cointegrated regressions in time series. The approach is based on the properties of the wavelet covariance and correlation in Monte Carlo studies of spurious and cointegrated regression. In the case of the spurious regression, the null hypotheses of zero wavelet covariance and correlation for these series across the scales fail to be rejected. Conversely, these null hypotheses across the scales are rejected for the cointegrated bivariate time series. These nonresidual-based tests are then applied to analyze if any relationship exists between the extraterrestrial phenomenon of sunspots and the earthly economic time series of oil prices. Conventional residual-based tests appear sensitive to the specification in both the cointegrating regression and the lag order in the augmented Dickey–Fuller tests on the residuals. In contrast, the wavelet tests, with their bootstrap t-statistics and confidence intervals, detect the spuriousness of this relationship.

A naive but optimal route to Walrasian behavior in oligopolies

A paradoxical phenomenon where irrationality or ignorance lead to higher profits is shown to prevail in an oligopolistic market where three firms produce a homogeneous product with identical technologies. Under the conventional assumption on the convexity of cost function, the profit made by a naive price-taker will always be higher than or at least as much as the other two rivals, no matter what kind of strategies the latter may take and whether they form a coalition or not. By sticking to the price-taking strategy, a firm always gains a positive profit improvement, should any one of its rivals try to upgrade from price-taker to the Cournotor. With these incentives, a firm prefers to remain as a naive price-taker.

Statistical dynamics and Walras' law

Abstract Much interest has been shown on identifying the chaotic behavior generated from tâtonnement process recently. The aim of this article is to direct the research in exploring its statistical dynamical properties. Two typical types of ergodic tâtonnement processes — restricted tâtonnement and unrestricted tâtonnement — have been studied. Their long-run statistical characteristics such as time average of price, excess demand and inflation rate are discussed in theory and by computer simulations.

Risk and predictability of Singapore's private residential market

This study explores the short-run predictability of, and the risks facing investors in, Singapores private housing market. We explicitly model a periodically collapsing rational speculative bubble within the present-value framework, and propose an unconventional approach as a first-step to screen for structural break(s). We found that a rational speculative bubble is an important predictor of the short-run price growth, especially in volatile times. Furthermore, rent is the only fundamental having a non-negligible impact. The study suggests that the major risk facing market participants comes from unpredictable local policy shifts, and/or a potentially predictable systemic risk.