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Regional financial market bloc and spillover of the financial crisis: A heterogeneous agents approach

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  • Zhenxi Chen

Abstract

A discrete‐time model is developed for a market bloc consisting of multiple financial markets. Investors face a discrete choice of adopting heterogeneous trading strategies for each destination market. In maximizing utility, the compositions of investors change with market conditions. Market opening within the market bloc has stabilizing and destabilizing effects. The relatively stable market in isolation exerts a stabilizing force on the market bloc, while itself suffers destabilizing effects from the rest of the market bloc. Markets with large investor population have a large influence on the market bloc. Two mechanisms of the spillover effects of the financial crisis within the market bloc are demonstrated.

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  • Zhenxi Chen, 2020. "Regional financial market bloc and spillover of the financial crisis: A heterogeneous agents approach," Manchester School, University of Manchester, vol. 88(2), pages 262-281, March.
    • Handle: RePEc:bla:manchs:v:88:y:2020:i:2:p:262-281
    DOI: 10.1111/manc.12303
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    1. Chen, Zhenxi & Lien, Donald & Lin, Yaheng, 2021. "Sentiment: The bridge between financial markets and macroeconomy," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 1177-1190.
    2. Chen, Zhenxi & Zheng, Huanhuan, 2022. "Herding in the Chinese and US stock markets: Evidence from a micro-founded approach," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 597-604.

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