Herding effects in order driven markets: The rise and fall of gurus

Gabriele Tedeschi, Giulia Iori and Mauro Gallegati

Journal of Economic Behavior & Organization, 2012, vol. 81, issue 1, 82-96

Abstract: We introduce an order driver market model with heterogeneous traders that imitate each other on a dynamic network structure. The communication structure evolves endogenously via a fitness mechanism based on agents performance. We assess under which assumptions imitation, among noise traders, can give rise to the emergence of gurus and their rise and fall in popularity over time. We study the wealth distribution of gurus, followers and non followers and show that traders have an incentive to imitate and a desire to be imitated since herding turns out to be profitable. The model is then used to study the effect that different competitive strategies (i.e. chartist & fundamentalist) have on agents performance. Our findings show that positive intelligence agents cannot invade a market populated by noise traders when herding is high.

Keywords: Dynamic network; Herding; Guru; Order driver market (search for similar items in EconPapers)
JEL-codes: D03 D53 D85 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (61)

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Working Paper: Herding effects in order driven markets: The rise and fall of gurus (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:81:y:2012:i:1:p:82-96

DOI: 10.1016/j.jebo.2011.09.006

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