Behavioural heterogeneity in the New Zealand stock market

Bart Frijns and Ivan Indriawan

New Zealand Economic Papers, 2018, vol. 52, issue 1, 53-71

Abstract: We examine the dynamics of the New Zealand stock market using an asset pricing model with heterogeneous agents. Applying the model to historical data from 1899 to 2015, we identify both fundamentalist and trend-following (chartist) behaviours of investors. In addition, we document that investors switch between fundamentalist and chartist rules when either of these rules has been more profitable in the recent past. Both behaviours contribute to large fluctuations of stock prices relative to their fundamental value and can explain some of the dynamics around bubbles and crashes.

Date: 2018
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DOI: 10.1080/00779954.2016.1217915

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