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Herding effects in order driven markets: The rise and fall of gurus

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  • Iori, G.
  • Tedeschi, G.

Abstract

We introduce an order driver market model with heterogeneous traders that imitate each other on a dynamic network structure. The communication structure evolves endogenously via a fitness mechanism based on agents performance. We assess under which assumptions imitation, among otherway noise traders, can give rise to the emergence of gurus and their rise and fall in popularity over time. We study the wealth distribution of gurus, followers and non followers and show that traders have an incentive to imitate and to be imitated since herding turns out to be profitable.

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File URL: http://openaccess.city.ac.uk/1487/1/Herding_Effects_in_Order_Driven_Markets.pdf
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Bibliographic Info

Paper provided by Department of Economics, City University London in its series Working Papers with number 10/05.

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Date of creation: 2010
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Handle: RePEc:cty:dpaper:10/05

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Postal: Department of Economics, Social Sciences Building, City University London, Whiskin Street, London, EC1R 0JD, United Kingdom,
Phone: +44 (0)20 7040 8500
Web page: http://www.city.ac.uk
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Keywords: dynamic network; herding; guru; order driver market;

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References

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Cited by:
  1. Lenzu, Simone & Tedeschi, Gabriele, 2012. "Systemic risk on different interbank network topologies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(18), pages 4331-4341.
  2. Bargigli, Leonardo & Tedeschi, Gabriele, 2014. "Interaction in agent-based economics: A survey on the network approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 399(C), pages 1-15.
  3. Iori, G. & Porter, J., 2012. "Agent-Based Modelling for Financial Markets," Working Papers 12/08, Department of Economics, City University London.
  4. A. E. Biondo & A. Pluchino & A. Rapisarda & D. Helbing, 2013. "Are random trading strategies more successful than technical ones?," Papers 1303.4351, arXiv.org, revised Jul 2013.
  5. Mark Setterfield & Bill Gibson, 2013. "Real and financial crises," Working Papers 1309, Trinity College, Department of Economics, revised Sep 2013.

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