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A model for the contagion and herding

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  • Caetano, Marco Antonio Leonel
  • Yoneyama, Takashi

Abstract

This work concerns the modeling of contagion and herding effects which can cause significant movements of prices and volatilities. The idea is to adapt some concepts borrowed from the Biological Sciences and that have emerged as useful analogies to model a variety of phenomena in a large variety of fields such as Engineering and Economics. In this work, the allegory of interacting particles is used to describe the contagion and emergence of herding behavior of financial agents leading to the formation of clusters. The main idea is to adapt the schemes originally employed in particle swarm optimization algorithms, together with the concepts of leaders and followers. As an illustration of the applicability of the proposed model, a case study is presented using data from the World Bank.

Suggested Citation

  • Caetano, Marco Antonio Leonel & Yoneyama, Takashi, 2011. "A model for the contagion and herding," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4445-4450.
    • Handle: RePEc:eee:phsmap:v:390:y:2011:i:23:p:4445-4450
    DOI: 10.1016/j.physa.2011.07.039
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    References listed on IDEAS

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    1. J. Doyne Farmer, 2002. "Market force, ecology and evolution," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(5), pages 895-953, November.
    2. Beck , Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2009. "Financial institutions and markets across countries and over time - data and analysis," Policy Research Working Paper Series 4943, The World Bank.
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    Cited by:

    1. Haghani, Milad & Sarvi, Majid, 2017. "Social dynamics in emergency evacuations: Disentangling crowd’s attraction and repulsion effects," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 475(C), pages 24-34.
    2. Fabio Della Rossa & Lorenzo Giannini & Pietro DeLellis, 2020. "Herding or wisdom of the crowd? Controlling efficiency in a partially rational financial market," PLOS ONE, Public Library of Science, vol. 15(9), pages 1-16, September.
    3. Caetano, Marco Antonio Leonel & Yoneyama, Takashi, 2015. "Boolean network representation of contagion dynamics during a financial crisis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 417(C), pages 1-6.

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