Game on: Social networks and markets

Lasse Heje Pedersen

Journal of Financial Economics, 2022, vol. 146, issue 3, 1097-1119

Abstract: I present closed-form solutions for prices, portfolios, and beliefs in a model where four types of investors trade assets over time: naive investors who learn via a social network, “fanatics” possibly spreading fake news, and rational short- and long-term investors. I show that fanatic and rational views dominate over time, and their relative importance depends on their following by influencers. Securities markets exhibit social network spillovers, large effects of influencers and thought leaders, bubbles, bursts of high volume, price momentum, fundamental momentum, and reversal. The model sheds new light on the GameStop event, historical bubbles, and asset markets more generally.

Keywords: Networks; Influencers; Social media; Bubbles; Asset prices; Belief formation; Momentum; Reversal (search for similar items in EconPapers)
JEL-codes: D85 D91 G12 G14 G4 G5 L14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:3:p:1097-1119

DOI: 10.1016/j.jfineco.2022.05.002

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