Financial Contagion in Networks: A Market Experiment

Syngjoo Choi, Edoardo Gallo and Brian Wallace ()

Working Paper Series from Institute of Economic Research, Seoul National University

Abstract: We investigate how the network structure of ?nancial linkages and uncer- tainty about the location of a shock a?ect the likelihood of contagion and the formation of prices in a double auction market experiment. Core-periphery networks are highly susceptible to contagion and generate ?re sales of assets that exacerbate ?nancial contagion beyond the mechanical role of network structure. In contrast, contagion is minimal on circle networks and market prices remain stable. Uncertainty on the location of the shock has little in?uence. The traders¡¯ comprehension level of the network-driven risk is predictive of their behavior and the likelihood of bankruptcy.

Keywords: contagion; ?nancial network; experimental asset market (search for similar items in EconPapers)
JEL-codes: C92 D40 D85 L14 (search for similar items in EconPapers)
Date: 2017-06
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:snu:ioerwp:no124

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