Informative Contagion Dynamics in a Multilayer Network Model of Financial Markets

Abstract

In this paper we present a multilayer network model with contagion dynamics which is able to simulate the spreading of information and the transactions phase of a typical financial market. A rudimental order book dynamics is embedded in a framework where the trading decisions of investors and the information dynamics occur in two separated layers with different network topologies. The analysis addresses and compares the behaviour of an isolated one-asset market and a corresponding two-assets version, with different correlation degrees. Despite some simplifying assumptions, results show compliance to stylized facts exhibited by density functions of true financial returns.

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Acknowledgements

This study was partially supported by the FIR Research Project 2014 N.ABDD94 of the University of Catania.

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Correspondence to Alessio Emanuele Biondo.

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Biondo, A.E., Pluchino, A. & Rapisarda, A. Informative Contagion Dynamics in a Multilayer Network Model of Financial Markets. Ital Econ J 3, 343–366 (2017). https://doi.org/10.1007/s40797-017-0052-4

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Keywords

  • Financial market
  • Self organized criticality
  • Multilayer networks
  • Agent-based models
  • Informative contagion

JEL Classification

  • G1
  • G12
  • G17
  • C40