Asset Price Dynamics with Heterogeneous Beliefs and Local Network Interactions

Valentyn Panchenko, Sergiy Gerasymchuk and Oleg Pavlov
Additional contact information
Sergiy Gerasymchuk: ING Group
Oleg Pavlov: Department of Social Science and Policy Studies, Worcester Polytechnic Institute

No 2013-18, Discussion Papers from School of Economics, The University of New South Wales

Abstract: In this paper we investigate the effects of network topologies on asset price dynamics. We introduce network communications into a simple asset pricing model with heterogeneous beliefs. The agents may switch between several belief types according to their performance. The performance information is available to the agents only locally through their own experience and the experience of other agents directly connected to them. We model the communications with four commonly considered network topologies: a fully connected network, a regular lattice, a small world, and a random graph. The results show that the network topologies influences asset price dynamics in terms of the regions of stability, amplitudes of fluctuations and statistical properties.

Keywords: asset pricing; local interactions; networks; random graph; small world; heterogeneous beliefs; price dynamics (search for similar items in EconPapers)
JEL-codes: C45 C62 C63 D84 G12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2013-06
New Economics Papers: this item is included in nep-net and nep-ure
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Citations: View citations in EconPapers (16)

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Journal Article: Asset price dynamics with heterogeneous beliefs and local network interactions (2013)
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