King's College London

Research portal

Testing fundamentalist–momentum trader financial cycles: An empirical analysis via the Kalman filter

Research output: Contribution to journalArticlepeer-review

Filippo Gusella, Engelbert Stockhammer

Original languageEnglish
Pages (from-to)758-797
Number of pages40
Issue number4
Accepted/In press2021
PublishedNov 2021

Bibliographical note

Funding Information: The authors are grateful to Rob Jump, Giorgio Ricchiuti, two anonymous referees and a member of the editorial board of Metroeconomica for helpful comments and suggestions. The usual disclaimers apply. Publisher Copyright: © 2021 The Authors. Metroeconomica published by John Wiley & Sons Ltd. Copyright: Copyright 2021 Elsevier B.V., All rights reserved.

King's Authors


This paper proposes an empirical test for Minskyan financial cycles in asset prices, driven by the interaction of fundamentalist and momentum traders. Both agents’ beliefs about the future are unobserved and can be modelled in a state space model. We use the Kalman filter to identify the two behavioral rules and evaluate whether the conditions for the existence of cycles hold. The model is estimated for equity and housing prices for France, Germany, the UK and the United States, for the period 1970–2017, with annual and quarterly data. We find robust empirical support for the existence of endogenous financial cycles in equity markets for all countries and for France, the UK and the United States for housing markets.

View graph of relations

© 2020 King's College London | Strand | London WC2R 2LS | England | United Kingdom | Tel +44 (0)20 7836 5454