Regional Financial Markets With Common Currency

Weihong Huang () and Zhenxi Chen
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Zhenxi Chen: Division of Economics, Nanyang Technological University, Singapore 637332, Singapore

No 1210, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: With the development of globalization and regional market integration, regional markets with common currency emerge. We develop a heterogeneous agents model based on the frameworks of Day and Huang (1990) as well as Westerhoff and Dieci (2006). Two markets using same currency are populated by chartists and fundamentalists. Market linkage is established by allowing investors to trade in both markets. One of the consequences of market linkage is market pooling, in which investors from each market interact with each other and determine the price movements of the market system. The market that is more stable initially exerts stabilizing force on the market system while itself might su¤er from destabilizing effect. Market system based on the model demonstrates the capability to generate important stylized facts of financial markets, in particular the significant cross-correlation between two markets.

Keywords: Financial multi-market interactions; Market integration; Market Pooling; Chaos; Heterogeneous beliefs (search for similar items in EconPapers)
JEL-codes: C61 D84 G15 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-10
New Economics Papers: this item is included in nep-cba and nep-sea
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Citations: View citations in EconPapers (2)

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