Should network structure matter in agent-based finance?
Alfarano, Simone and Milaković, Mishael (2007) Should network structure matter in agent-based finance? Working Paper. Warwick Business School, Financial Econometrics Research Centre, Coventry.
WRAP_Alfarano_fwp07-02.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
We derive microscopic foundations for a well-known probabilistic herding model in the agent-based finance literature. Lo and behold, the model is quite robust with respect to behavioral heterogeneity, yet structural heterogeneity, in the sense of an underlying network structure that describes the very feasibility of agent interaction, has a crucial and non-trivial impact on the macroscopic properties of the model.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Social networks -- Economic aspects, Mean field theory, Statistical mechanics, Dependence (Statistics)|
|Series Name:||Working papers (Warwick Business School. Financial Econometrics Research Centre)|
|Publisher:||Warwick Business School, Financial Econometrics Research Centre|
|Place of Publication:||Coventry|
|Date:||24 April 2007|
|Number of Pages:||38|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|References:||Aiello,W., F. Chung, and L. Lu. 2002. Random evolution of massive graphs. In Handbook of Massive Data Sets, eds. J. Abello, P. M. Pardalos, and M. G. C. Resende, 97–122. Kluwer: Dordrecht. Albert, R., H. Jeong, and A.-L. Barabási. 1999. Diameter of the world-wide web. Nature 401:130–131. Alfarano, S., T. Lux, and F.Wagner. 2005. Estimation of agent-based models: the case of an asymmetric herding model. Computational Economics 26:19–49. ———. 2006. Time-variation of higher moments in a financial market with heterogeneous agents: An analytical approach. Forthcoming in Journal of Economic Dynamics and Control. Aoki, M. 1998. New Approaches to Macroeconomic Modeling. Cambridge, UK: Cambridge University Press. Barabási, A.-L., and R. Albert. 1999. Emergence of scaling in random networks. Science 286:509–512. Bornholdt, S. 2001. Expectation bubbles in a spin model of markets: Intermittency from frustation across scales. International Journal of Modern Physics C 12:667–674. Brock, W. A., and C. H. Hommes. 1997. A rational route to randomness. Econometrica 65:1059–1095. Cont, R., and J. P. Bouchaud. 2000. Herd behaviour and aggregate fluctuations in financial markets. Macroeconomic Dynamics 4:170–196. Ding, Z., R. Engle, and C. Granger. 1993. A long memory property of stock market returns and a new model. Journal of Empirical Finance 1:83–106. Ebel, H., L.-I. Mielsch, and S. Bornholdt. 2002. Scale-free topology of e-mail networks. Physical Review E 66. 035103. Egenter, E., T. Lux, and D. Stauffer. 1999. Finite-size effects in Monte Carlo simulations of two stock market models. Physica A, 268:250–256. Faloutsos, M., P. Faloutsos, and C. Faloutsos. 1999. On power-law relationships of the internet topology. Computer Communications Review 29:251–262. Gopikrishnan, P., M. Meyer, L. A. N. Amaral, and H. E. Stanley. 1998. Inverse cubic law for the distribution of stock price variations. European Physical Journal B 3:139–140. Hong, H., J. D. Kubik, and J. C. Stein. 2005. Thy neighbor’s portfolio: Word-of-mouth effects in the holdings and trades of money managers. Journal of Finance 60:2801–2824. Iori, G. 2002. A micro-simulation of traders’ activity in the stock market: the role of heterogeneity, agents’ interactions and trade friction. Journal of Economic Behavior and Organization 49:269–285. Jackson, M. O. 2004. A survey of models of network formation: Stability and efficiency. In Group Formation in Economics; Networks, Clubs and Coalitions, eds. G. Demange and M. Wooders. Cambridge, UK: Cambridge University Press. Kirman, A. 1991. Epidemics of opinion and speculative bubbles in financial markets. In Money and Financial Markets, ed. M. P. Taylor, 354–368. Cambridge: Blackwell. ———. 1993. Ants, rationality, and recruitment. Quarterly Journal of Economics 108:137–156. Liljeros, F., C. R. Edling, L. A. N. Amaral, H. E. Stanley, and Y. Åberg. 2001. The web of human sexual contacts. Nature 411:907–908. Lobato, I. N., and N. E. Savin. 1998. Real and spurious long-memory properties of stock market data. Journal of Business and Economic Statistics 16:261–283. Lux, T. 2006. Financial power laws: Empirical evidence, models, and mechanisms. In Power Laws in the Social Sciences: Discovering Complexity and Non-Equilibrium Dynamics in the Social Universe, ed. Claudio Cioffi. Cambridge, UK: Cambridge University Press. Forthcoming. Lux, T., and M. Ausloos. 2002. Market fluctuations I: Scaling, multiscaling and their possible origins. In Theories of Disaster - Scaling Laws Governing Weather, Body, and Stock Market Dynamics, eds. A. Bunde, J. Kropp, and H. J. Schellnhuber, 373–409. Berlin Heidelberg: Springer. Lux, T., and M. Marchesi. 1999. Scaling and criticality in a stochastic multiagent model of a financial market. Nature 397:498–500. Lux, T., and S. Schornstein. 2005. Genetic learning as an explanation of stylized facts of foreign exchange markets. Journal of Mathematical Economics 41:169–196. Newman, M.E.J. 2003. The structure and function of complex networks. SIAM Review 45:167–256. Pagan, A. 1996. The econometrics of financial markets. Journal of Empirical Finance 3:15–102. Price, D. J. de S. 1965. Networks of scientific papers. Science 149:510–515. Redner, S. 1998. How popular is your paper? An empricial study of the citation distribution. The European Physical Journal B 4:131–134. Shiller, R.J. 1984. Stock prices and social dynamics. Brookings Papers on Economic Activity 2:457–510. Stauffer, D., and A. Aharony. 1994. Introduction to Percolation Theory. London: CRC Press. Stauffer, D., and D. Sornette. 1999. Self-organized percolation model for stock market fluctuation. Physica A 271:496–506. Van Kampen, N. G. 1997. Stochastic Processes in Physics and Chemistry. Amsterdam: Elsevier. Watts, D. J., and S. H. Strogatz. 1998. Collective dynamics of ‘small-world’ networks. Nature 393:440–442.|
Actions (login required)