Title: Asia-pacific financial market inefficiency: evidence through behavioural models

Authors: Nahed Zghidi

Addresses: Department of Economics and Management, Higher Business School of Sfax, University of Sfax, Airport Road Km 4.5, BP 1081, 3018 Sfax, Tunisia

Abstract: The general equilibrium models with representative agents have proved to be inadequate descriptions of the Asia-Pacific emerging market. Within this framework, we present a model with heterogeneous agents, optimisers, and non-optimisers in which the financial markets consist of agent clusters. Our methodology consists of dividing the market participants into 'rational agents' who form sensible forecasts, and 'irrational agents' who develop biased forecasts, trade on tips, and bid prices away from their fundamental values. The analysis examines monthly frequency stock returns for the Asia-Pacific financial market and world returns using data spanning January 2004 and April 2019. Our results show a positive slope between irrationality and volatility but deterministic for return. Such a persistent connection between irrational and stock volatility suggests that investor sentiment is one of the most crucial determinants of market volatility. The ratio of successful exchange and merger depends on the proportion of the rational agents vs. the irrational ones.

Keywords: behavioural economics; asset pricing; irrationality; financial economics; Asia-pacific.

DOI: 10.1504/IJBAF.2022.127078

International Journal of Behavioural Accounting and Finance, 2022 Vol.6 No.4, pp.311 - 332

Received: 13 Nov 2021
Accepted: 30 Mar 2022
Published online: 21 Nov 2022 *