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Communication, correlation of beliefs and asset price fluctuations


Author Info

  • Hiroyuki NAKATA

    (School of Accounting, Finance and Management, University of Essex)


This paper studies how communication amongst agents influences the equilibrium of a financial economy. We set up a standard overlapping generations (OLG) model with assets, while allowing for heterogeneous beliefs. The paper explicitly describes how communication generates correlation of beliefs, and show that communication can be embedded in the models of rational beliefs that do not model communication explicitly a priori. We confine our attention to a Markovian economy, in which the beliefs of the agents are all Markovian. Simulation results are provided to examine the effects of communication, while classifying the beliefs in accord to the reactions to communication.

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Bibliographic Info

Article provided by Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore in its journal Rivista Internazionale di Scienze Sociali.

Volume (Year): 115 (2007)
Issue (Month): 3 ()
Pages: 443-469

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Handle: RePEc:vep:journl:y:2007:v:115:i:3:p:443-469

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Related research

Keywords: Communication; Correlation of beliefs; Fluctuations; Heterogeneous beliefs; Rational beliefs;

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