On the bimodality of the distribution of the S&P 500’s distortion : empirical evidence and theoretical explanations

Noemi Schmitt and Frank Westerhoff

After showing that the distribution of the S&P 500's distortion, i.e. the log difference between its real stock market index and its real fundamental value, is bimodal, we demonstrate that agentbased financial market models may explain this puzzling observation. Within these models, speculators apply technical and fundamental analysis to predict asset prices. Since destabilizing technical trading dominates the market near the fundamental value, asset prices tend to be either overvalued or undervalued. Interestingly, the bimodality of the distribution of the S&P 500's distortion confirms an implicit prediction of a number of seminal agent-based financial market models.

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Year of publication:	January 2017
Authors:	Schmitt, Noemi ; Westerhoff, Frank H.
Publisher:	Bamberg : Bamberg Economic Research Group, Bamberg University
Subject:	Stock market dynamics \| bubbles and crashes \| chartists and fundamentalists \| nonlinear dynamics \| bimodality tests \| time series analysis \| Theorie \| Theory \| Zeitreihenanalyse \| Time series analysis \| Spekulationsblase \| Bubbles \| Börsenkurs \| Share price \| Nichtlineare Dynamik \| Nonlinear dynamics \| Aktienmarkt \| Stock market