Exit Spirals in Coupled Networked Markets

Christoph Aymanns (), Co-Pierre Georg () and Benjamin Golub ()
Additional contact information
Christoph Aymanns: QuantCo, Inc., Cambridge, Massachusetts 02139
Co-Pierre Georg: EDHEC Business School, 06200 Nice, France
Benjamin Golub: Northwestern University, Evanston, Illinois 60208

Operations Research, 2023, vol. 71, issue 5, 1472-1497

Abstract: Strategic agents choose whether to be active in networked markets. The value of being active depends on the activity choices of specific counterparties. Several markets are coupled when agents’ participation decisions are complements across markets. We model the problem of an analyst assessing the robustness of coupled networked markets during a crisis—an exogenous negative payoff shock—based only on partial information about the network structure. We give conditions under which exit spirals emerge—abrupt collapses of activity following shocks. Market coupling is a pervasive cause of fragility, creating exit spirals even between networks that are individually robust. The robustness of a coupled network system can be improved if one of two markets is replaced by a centralized one or if links become more correlated across markets.

Keywords: Financial Engineering; over-the-counter markets; networks; strategic complementarity (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/opre.2023.2439 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:71:y:2023:i:5:p:1472-1497

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().