Econometrics and computational economics: an exercise in compatibility

This paper tests whether the econometric model of Boswijk et al. (2007) (BHM07) adequately identifies strategy switching behaviour by using computational data from a different model, in particular the model Friedman and Abraham (2009) (FA09). The purpose of using computational data based on an endogenous behavioural mechanism distinct from switching behaviour is to examine whether we can recover the estimates found using S&P 500 data. The results indicate that the estimation results from BHM07 can be partly recovered from the computational data suggesting that BHM07 does adequately identify switching behaviour. However, results also suggest that factors not included BHM07 but included in FA09 may be as or more important in explaining fat tails and excessive volatility.