Game On: Social Networks and Markets

54 Pages Posted: 1 Mar 2021 Last revised: 1 Jun 2022

See all articles by Lasse Heje Pedersen

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

Date Written: February 28, 2021


I present closed-form solutions for prices, portfolios, and beliefs in a model where four types of investors trade assets over time: naive investors who learn via a social network, ``fanatics'' possibly spreading fake news, and rational short- and long-term investors. I show that fanatic and rational views dominate over time, and their relative importance depends on their following by influencers. Securities markets exhibit social network spillovers, large effects of influencers and thought leaders, bubbles, bursts of high volume, price momentum, fundamental momentum, and reversal. The model sheds new light on the GameStop event, historical bubbles, and asset markets more generally.

Keywords: Echo chambers, networks, influencers, fake news, social media, bubbles, asset prices, belief formation

JEL Classification: D85, D91, G12, G14, G4, G5, L14

Suggested Citation

Pedersen, Lasse Heje, Game On: Social Networks and Markets (February 28, 2021). NYU Stern School of Business Forthcoming, Available at SSRN: or

Lasse Heje Pedersen (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000

New York University (NYU) ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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