Behavioral Heterogeneity in the Japanese and US Stock Markets

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