Regional Financial Markets With Common Currency
AbstractWith 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.
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Bibliographic InfoPaper provided by Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre in its series Economic Growth centre Working Paper Series with number 1210.
Length: 26 pages
Date of creation: Oct 2012
Date of revision:
Financial multi-market interactions; Market integration; Market Pooling; Chaos; Heterogeneous beliefs;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-CBA-2013-02-03 (Central Banking)
- NEP-SEA-2013-02-03 (South East Asia)
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