PhD Defence: Measurement, Dynamics, and Implications of Heterogeneous Beliefs in Financial Markets

ERIM’s Saskia ter Ellen confronts the many dimensions of diversity and an overreliance on homogeneity throughout the dismal science in her upcoming dissertation, ‘Measurement, Dynamics, and Implications of Heterogeneous Beliefs in Financial Markets’. Contributing to a new field of research which seeks to relax constraints placed on homogeneity in favour of a more stylized, but representative, economic model, Saskia demonstrates that such diversity may imbue economic actors or persons with unstable and unconditional forecasting rules in the forming of expectations about future events.

Saskia defended her dissertation in the Senate Hall at Erasmus University Rotterdam on Thursday, 28 May 2014. Her supervisors were Dr. Remco Zwinkels and Professor Willem Verschoor. Other members of the Doctoral Committee included Professor Partick Verwijmeren (EUR), Professor Mathijs van Dijk (EUR) and Professor Xue-Zhong He (University of Technology, Syndey). 

About Saskia ter Ellen

Saskia ter Ellen was born on February 6th, 1987 in Strijen, The Netherlands. She graduated from Radboud University Nijmegen with a Bachelor degree in Economics in 2009, after having been active as a board member of ‘Economische Studenten Vereniging’ in 2006/2007 and ‘United Netherlands’ in 2008/2009. In the summer of 2009 she moved to Rotterdam to complete a Master in Financial Economics at the Erasmus School of Economics, and stayed there to obtain a PhD degree under the supervision of Willem Verschoor and Remco Zwinkels. During her PhD Saskia spent four months at University of Technology Sydney to work with Carl Chiarella, Xue-Zhong He and Eliza Wu. She presented her work at numerous conferences and seminars. In her last year she organized the ‘Research in Behavioural Finance Conference’ in cooperation with Martijn van den Assem and Remco Zwinkels, which will be the first in a biennial sequence due to its overwhelming success. She has supervised various master theses, was a teaching assistant for the BSc course ‘Financial Methods and Techniques’ and co-developed and taught the intensive MSc course ‘Seminar Behavioural Finance’. Chapters 3 and 4 of this dissertation have been published in respectively ‘Journal of International Money and Finance’ and ‘Journal of Empirical Finance’. Besides these academic accomplishments, one of her main accomplishments during the years of her PhD was finishing the Rotterdam Marathon in April 2013. Saskia currently lives in Oslo, where she works as a Research Economist in the research department of Norges Bank, Norway’s central bank.

Thesis Abstract

This dissertation is part of a growing research field in which the heterogeneity of economic actors is incorporated. It bundles four studies that consider the measurement, dynamics and implications of heterogeneous beliefs in financial markets, using a variety of datasets. The studies show that investors are not only heterogeneous, they also do not use stable, unconditional, forecasting rules to form their expectation on future movements of financial markets. Instead, they may change the way they form expectations based on various factors, such as the past performance of different forecasting rules or the horizon for which they form their expectations. The dynamics between the different types of investors can cause periods of severe mispricing and disruption of financial markets. Survey datasets that contain analysts’ forecast are important tools to unravel investor expectation mechanisms and dynamics that can otherwise not always be directly observed in the data. They can also reveal why investors sometimes disagree more with each other than at other times and how these underlying reasons can be of crucial importance for market dynamics.