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Communication, networks and asset price dynamics: a survey

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  • Michael Hatcher

    (University of Southampton)

  • Tim Hellmann

    (University of Southampton)

Abstract

In this paper, we provide a wide-ranging survey of the state of the art in the area of communication and asset price dynamics. We start out by documenting empirical evidence that social communication influences investment decisions and asset prices, before turning to the main modelling approaches in the literature (both past and present). We discuss models of belief-updating based on observed performance; models of herd behaviour; and models with social interactions that arise from preferences for conformity or contrarianism. Our main contribution is to introduce readers to a social network approach which has been widely used in the opinion dynamics literature, but only recently applied to asset pricing. In the final part, we show how recent contributions to both modelling and empirical work are using the social network approach to improve our understanding of financial markets and asset price dynamics. We conclude with some thoughts on fruitful avenues for future research.

Suggested Citation

  • Michael Hatcher & Tim Hellmann, 2024. "Communication, networks and asset price dynamics: a survey," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 19(1), pages 1-58, January.
    • Handle: RePEc:spr:jeicoo:v:19:y:2024:i:1:d:10.1007_s11403-023-00395-8
    DOI: 10.1007/s11403-023-00395-8
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    More about this item

    Keywords

    Asset pricing; Social networks; Heterogeneous beliefs; Opinion dynamics;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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