Abstract
In this paper we develop and estimate a heterogeneous agents model with three different types of agents, switching beliefs, and two equity markets, Hong Kong and Thailand, in the period surrounding the Asian crisis. We find that investors are heterogeneous in their expectation formation strategies and that they switch between strategies conditional on previous performance of these strategies. The model shows that the crisis is triggered in Thailand as a result of an increased focus on the fundamental price. Furthermore, it is shown that the crisis spills to the Hong Kong market; therefore, there is evidence of shift-contagion.
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