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Heterogeneous beliefs in over-the-counter markets

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journal contribution
posted on 28.07.2014, 12:56 by Marc De Kamps, Daniel Ladley, Aistis Simaitis
The behavior and stability of over-the-counter markets is of central concern to regulators. Little is known, however, about how the structure of these markets determine their properties. In this paper we consider an over-the-counter market populated by boundedly rational heterogeneous traders in which the structure is represented by a network. Stability is found to decrease as the market becomes less well connected, however, the configuration of connections has a significant effect. The presence of hubs, such as those found in scale free networks increases stability and decreases volatility whilst small-world short-cut links have the opposite effect. Volatility in the fundamental value increases market volatility, however, volatility in the riskless asset returns has an ambiguous effect.

History

Citation

Journal of Economic Dynamics and Control, 2014, 41, pp. 50-68

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCE/Department of Economics

Version

AM (Accepted Manuscript)

Published in

Journal of Economic Dynamics and Control

Publisher

Elsevier

issn

0165-1889

Copyright date

2014

Available date

01/10/2016

Publisher version

http://www.sciencedirect.com/science/article/pii/S0165188914000542

Notes

The file associated with this record is embargoed until 36 months after the date of publication. The final published version may be available through the links above.

Language

en