Monday13th August 2012 – 12:30 to 13:30
Speaker(s): Johan Walden (Haas School of Business, Berkeley)
We introduce a dynamic noisy rational expectations model, in which information diffuses through a network of agents. In equilibrium, trading behavior and profitability are determined by agents’ position in the network, through a centrality measure that is closely related to so-called Katz centrality. Further, the network structure determines aggregate trading volume and return volatility, as well as the dynamic relationship between the two. The model could, for example, be used to explain differences in stock market dynamics across different markets.