Modelling of Agents' Expectations in the Stock Market: Prediction of the Time of Securities Price Convergence to Fair Value

Fundamental analysis of assets in the financial market is based on the concept of fundamental value - an investment is appropriate if the current market price is below fair one. In this case, it is assumed that sooner or later these prices will come together. Nevertheless, the time of this convergence may be so great that the additional yield from market undervaluation of the financial instrument (the so-called alpha) will be insignificant. That is why when investing, it is important not only to determine a fair price, but also to estimate the time of price convergence to fundamental value. This instrument can be provided by a relatively young branch of financial science - quantitative behavioral finance. The purpose of this research is to estimate the parameters that determine the interaction between investors in the market, which will make it possible to estimate the time when securities quotations come to their fair levels. The parameters will be estimated based on historical data on the dynamics of these shares, as well as the consensus forecast of Thomson Reuters. The source of data is Thomson Reuters Eikon. The method of simulated moments was chosen as the estimation method, because, according to the author of the chosen theoretical model, this method is the most preferable for structural models of this kind. As we will show later, the initial hypotheses that the expected time of convergence in the Russian market is more than 1 year have not been confirmed. The practical benefit of this research is not only that it tested some hypotheses about the Russian stock market. It also offered an instrument which, having a rather transparent logic, gives an idea of the sensitivity of quotations of this or that security to a fair price. It is expected that this instrument will be as useful in selecting objects for investment as the fair price value itself.