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Estimating heterogeneous agents behavior in a two-market financial system

Author

Listed:
  • Chen, Zhenxi
  • Huang, Weihong
  • Zheng, Huanhuan
Abstract
In this paper, we propose a two-market empirical model with heterogeneous agents based on Chiarella et al. (2012). Using monthly data of French and US stock markets, the regression shows that individual markets have feature of two-regime switching process. By including inter-market traders whose trading decision is based on fundamental value of foreign market, the two-market model has a better capability in explaining both markets with domestic fundamental traders turning to be significant. The existence of inter-market traders implies that the two markets impact each other through their fundamental and hence share some common set of factors, which provides foundation of market interactions, such as market co-movement.

Suggested Citation

  • Chen, Zhenxi & Huang, Weihong & Zheng, Huanhuan, 2015. "Estimating heterogeneous agents behavior in a two-market financial system," FinMaP-Working Papers 48, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    • Handle: RePEc:zbw:fmpwps:48
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Zhenxi Chen & Stefan Reitz, 2020. "Dynamics of the European sovereign bonds and the identification of crisis periods," Empirical Economics, Springer, vol. 58(6), pages 2761-2781, June.
    2. Zhenxi Chen, 2020. "Regional financial market bloc and spillover of the financial crisis: A heterogeneous agents approach," Manchester School, University of Manchester, vol. 88(2), pages 262-281, March.
    3. Jonathan W. Welburn, 2020. "Crises Beyond Belief: Findings on Contagion, the Role of Beliefs, and the Eurozone Debt Crisis from a Borrower–Lender Game," Computational Economics, Springer;Society for Computational Economics, vol. 56(2), pages 263-317, August.

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    More about this item

    Keywords

    cross-correlation; co-movement; heterogeneous agents; financial multi-market interactions;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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