Work

Investor heterogeneity and stock market volatility: cross-country evidence from an extended heterogeneous agent model

Year: 2026

Type: article

Abstract: We study how investor heterogeneity relates to stock-market volatility in a cross-country setting using an extended fundamentalist–chartist heterogeneous agent model (HAM). We propose a time-varying heterogeneity intensity measure that combines belief differentials with endogenous investor composition to capture composition-weighted heterogeneity. Using equity index data for 12 developed and emerging markets over 2010–2023 at multiple sampling frequencies, we estimate the model for each market under a harmonized protocol. Across markets and specifications, the belief-gap measure alone is not systematically related to realized volatility, whereas the composition-weighted heterogeneity intensity exhibits a strong and robust positive association with volatility. The results highlight the importance of incorporating both heterogeneous beliefs and participation dynamics in behavioral asset-pricing frameworks and provide a parsimonious metric for characterizing time-varying heterogeneity in international equity markets.

Source: Financial Innovation

DOI: 10.1186/s40854-026-00969-y

Authors: Zhong-Qiang Zhou, Jie Li, Xiong Xiong, Chee-Wooi Hooy

Institutions: Guizhou University of Finance and Economics, Nanjing Audit University, Tianjin University, Universiti Sains Malaysia

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: diamond

Funder: National Natural Science Foundation of China

Awards: G402910107, G4110861740, G6875453815, G6894469130