Estimating heterogeneous agents behavior in a two-market financial system

Zhenxi Chen, Weihong Huang () and Huanhuan Zheng
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Weihong Huang: Nanyang Technological University

Journal of Economic Interaction and Coordination, 2018, vol. 13, issue 3, No 2, 510 pages

Abstract: Abstract In this paper, we propose a two-market empirical model with heterogeneous agents based on Chiarella et al. (J Econ Behav Organ 83(3):446–460, 2012). Using monthly data of French and US stock markets, the regression shows that individual markets have features of a 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 fundamentals and hence share some common set of factors, which provides foundation of market interactions, such as market co-movement.

Keywords: Cross-correlation; Co-movement; Heterogeneous agents; Financial multi-market interactions (search for similar items in EconPapers)
JEL-codes: D84 G12 G15 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Working Paper: Estimating heterogeneous agents behavior in a two-market financial system (2015)
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DOI: 10.1007/s11403-017-0190-7

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