Asset Price Dynamics with Heterogeneous Beliefs and Local Network Interactions
Journal of Economic Dynamics and Control, Forthcoming, doi:10.1016/j.jedc.2013.06.015
UNSW Australian School of Business Research Paper No. 2013-18
46 Pages Posted: 26 Jun 2013 Last revised: 13 Aug 2013
Date Written: June 20, 2013
Abstract
In this paper we investigate 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 influences 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
JEL Classification: C45, C62, C63, D84, G12
Suggested Citation: Suggested Citation
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