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Regional financial market bloc and spillover of the financial crisis: A heterogeneous agents approach
Author(s) -
Chen Zhenxi
Publication year - 2020
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12303
Subject(s) - spillover effect , economics , financial crisis , financial market , factor market , population , market microstructure , market depth , market impact , monetary economics , financial system , order (exchange) , finance , market economy , macroeconomics , stock market , paleontology , demography , horse , sociology , biology
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.