PIs: Valentyn Panchenko (University of New South Wales), Sergiy Gerasymchuk (ING Group), and Oleg V. Pavlov (WPI)
This project investigates the effects of network topologies on asset price dynamics. We introduce network communications into a simple asset pricing model with heterogeneous beliefs. The agents may switch between several belief types according to their performance. The performance information is available to the agents only locally through their own experience and the experience of other agents directly connected to them. We model the communications with four commonly considered network topologies: a fully connected network, a regular lattice, a small world, and a random graph. The results show that the network topologies influence asset price dynamics in terms of the regions of stability, amplitudes of fluctuations and statistical properties.
Keywords: Asset pricing, Local interactions, Networks, Random graph, Small world, Heterogeneous beliefs, Price dynamics
Panchenko, V., S. Gerasymchuk, and O. Pavlov. “Asset Price Dynamics with Heterogeneous Beliefs and Local Network Interactions.” Journal of Economic Dynamics and Control. v. 37 (12), 2013: 2623–2642. Paper link.