BEHAVIORAL HETEROGENEITY IN THE JAPANESE AND US STOCK MARKETS

Sook-Rei Tan, Changtai Li () and Wai-Mun Chia ()
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Sook-Rei Tan: Department of Business, James Cook University Singapore, 149 Sims Drive, Singapore 387380, Singapore
Changtai Li: PBC School of Finance, Tsinghua University, Beijing 100083, P. R. China
Wai-Mun Chia: Department of Economics, Nanyang Technological University, 48 Nanyang Avenue, Singapore 639818, Singapore

The Singapore Economic Review (SER), 2025, vol. 70, issue 03, 559-584

Abstract: Using monthly stock prices and exchange rate of Japan and the US from June 1980 to December 2019, we identify episodes of boom/bubble and bust/crash in these stock markets by comparing their market prices with their respective fundamental values. We then examine the price dynamic of the two stock markets and foreign exchange market using a three-market heterogeneous agent model with fundamentalists and chartists. Our results suggest that the degree of behavioral heterogeneity is greater in the boom/bubble regime than that of the bust/crash regime. We also confirm that behavioral heterogeneity and cross market trades prevail only during boom/bubble period which is consistent with existing literature of 1986–1991 Japanese asset price bubble.

Keywords: Stock bubble; behavioral heterogeneity; multi-market interaction; regime switching VAR; Markov switching VAR (search for similar items in EconPapers)
JEL-codes: C34 D84 G12 G15 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S0217590822500205

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