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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.

Suggested Citation

  • Iori, G. & Tedeschi, G., 2010. "Herding effects in order driven markets: The rise and fall of gurus," Working Papers 10/05, Department of Economics, City University London.
    • Handle: RePEc:cty:dpaper:10/05
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    More about this item

    Keywords

    dynamic network; herding; guru; order driver market;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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