Heterogeneous beliefs in over-the-counter markets

Marc De Kamps, Daniel Ladley () and Aistis Simaitis

Journal of Economic Dynamics and Control, 2014, vol. 41, issue C, 50-68

Abstract: The behavior and stability of over-the-counter markets is of central concern to regulators. Little is known, however, about how the structure of these markets determine their properties. In this paper we consider an over-the-counter market populated by boundedly rational heterogeneous traders in which the structure is represented by a network. Stability is found to decrease as the market becomes less well connected, however, the configuration of connections has a significant effect. The presence of hubs, such as those found in scale free networks increases stability and decreases volatility whilst small-world short-cut links have the opposite effect. Volatility in the fundamental value increases market volatility, however, volatility in the riskless asset returns has an ambiguous effect.

Keywords: Over-the-counter; Boundedly rationality; Stability; Network; Heterogeneous agent model (search for similar items in EconPapers)
JEL-codes: C63 G10 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Heterogeneous Beliefs in Over-The-Counter Markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:41:y:2014:i:c:p:50-68

DOI: 10.1016/j.jedc.2014.02.009

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