Trading, Profits, and Volatility in a Dynamic Information Network Model

47 Pages Posted: 7 Feb 2015 Last revised: 13 Aug 2018

See all articles by Johan Walden

Johan Walden

University of Lausanne; Swiss Finance Institute; University of California, Berkeley - Finance Group

Date Written: June 4, 2018


We introduce a dynamic noisy rational expectations model in which information diffuses through a general network of agents. In equilibrium, agents who are more closely connected have more similar period-by-period trades, and an agent’s profitability is determined by a centrality measure that is related to Katz centrality. Volatility after an information shock is more persistent in less central networks, and volatility and trading volume are also influenced by the network’s asymmetry and irregularity. Using account level data of all portfolio holdings and trades on the Helsinki Stock Exchange between 1997 and 2003, we find support for the aggregate predictions, altogether suggesting that the market’s network structure is important for these dynamics.

Keywords: Information diffusion, information networks, heterogeneous investors, portfolio choice, asset pricing, trading volume

JEL Classification: G00, G11, G12

Suggested Citation

Walden, Johan, Trading, Profits, and Volatility in a Dynamic Information Network Model (June 4, 2018). Available at SSRN: or

Johan Walden (Contact Author)

University of Lausanne

Quartier Chambronne
Lausanne, Vaud CH-1015

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

University of California, Berkeley - Finance Group ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
(510) 643-0547 (Phone)


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