Asset Price Dynamics with Local Interactions under Heterogeneous Beliefs

S. Gerasymchuk () and O.V. Pavlov
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S. Gerasymchuk: University of New South Wales
Authors registered in the RePEc Author Service: Valentyn Panchenko

No 10-02, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: This paper investigates the effect of network structure on the asset price dynamics. We propose a simple present value discounted asset pricing model with heterogeneous agents. Every period the agents choose a predictor of the future price on the basis of past performance of their own and alternative strategies and form their demands for a risky asset. The information about the performance of an alternative strategy is available only locally from the directly connected agents. Using the rewiring procedure we produce four types of commonly considered networks: a fully connected network, a regular lattice, a small world, and a random network. The results show that the network structure influences asset price dynamics in terms of the region of stability and volatility. This is mostly due to the different speed of information transmission in the different networks.

Date: 2010
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ams:ndfwpp:10-02

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