Please use this identifier to cite or link to this item:
Alfarano, Simone
Milaković, Mishael
Raddant, Matthias
Year of Publication: 
Series/Report no.: 
Economics Working Paper 2009-09
Kirman's ant model has been used to characterize the expectation formation of financial investors who are prone to herding. The model's original version suffers from the problem of N-dependence: its ability to replicate the statistical features of financial returns vanishes once the system size N is increased. In a generalized version of the ant model, the network structure connecting agents turns out to determine whether or not the model is N-dependent. We investigate a class of hierarchical networks in the generalized model that presumably reflect the institutional heterogeneity of financial markets. These network structures do overcome the problem of N-dependence, but at the same time they also increase system-wide volatility. Thus network structure becomes an auxiliary source of volatility in addition to the behavioral heterogeneity of interacting agents.
financial markets
systemic risk
Document Type: 
Working Paper

Files in This Item:
442.45 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.