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Regional Financial Markets With Common Currency

Author

Listed:
  • Weihong HUANG

    (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore)

  • Zhenxi CHEN

    (Division of Economics, Nanyang Technological University, Singapore 637332, Singapore)

Abstract

With 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.

Suggested Citation

  • Weihong HUANG & Zhenxi CHEN, 2012. "Regional Financial Markets With Common Currency," Economic Growth Centre Working Paper Series 1210, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
  • Handle: RePEc:nan:wpaper:1210
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    File URL: http://www3.ntu.edu.sg/hss2/egc/wp/2012/2012-10.pdf
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    References listed on IDEAS

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    5. He, Xue-Zhong & Westerhoff, Frank H., 2005. "Commodity markets, price limiters and speculative price dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1577-1596, September.
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    Cited by:

    1. Huang, Weihong & Chen, Zhenxi, 2015. "Heterogeneous agents in multi-markets: A coupled map lattices approach," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 108(C), pages 3-15.

    More about this item

    Keywords

    Financial multi-market interactions; Market integration; Market Pooling; Chaos; Heterogeneous beliefs;

    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

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