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Behavioral Heterogeneity In The Japanese And Us Stock Markets

Author

Listed:
  • 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)

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.

Suggested Citation

  • Sook-Rei Tan & Changtai Li & Wai-Mun Chia, 2025. "Behavioral Heterogeneity In The Japanese And Us Stock Markets," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 70(03), pages 559-584, June.
    • Handle: RePEc:wsi:serxxx:v:70:y:2025:i:03:n:s0217590822500205
    DOI: 10.1142/S0217590822500205
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    More about this item

    Keywords

    Stock bubble; behavioral heterogeneity; multi-market interaction; regime switching VAR; Markov switching VAR;
    All these keywords.

    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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