Asset price dynamics with heterogeneous beliefs and local network interactions

Valentyn Panchenko, Sergiy Gerasymchuk and Oleg V. Pavlov

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 12, 2623-2642

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 influence 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: C62 C63 D84 D85 G12 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Asset Price Dynamics with Heterogeneous Beliefs and Local Network Interactions (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:12:p:2623-2642

DOI: 10.1016/j.jedc.2013.06.015

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