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Only Paul Could Go To Changchun

Financial Contagion in Networks: A Market Experiment         June 2017

9/24/2017

 
Here.

We investigate how the network structure of financial linkages and uncertainty
about the location of a shock affect the likelihood of contagion and the
formation of prices in a double auction market experiment. Core-periphery
networks are highly susceptible to contagion and generate resales of assets
that exacerbate financial contagion beyond the mechanical role of network
structure. In contrast, contagion is minimal on circle networks and market
prices remain stable. Uncertainty on the location of the shock has little influence.
The traders' comprehension level of the network-driven risk is predictive
of their behavior and the likelihood of bankruptcy.


From:

Syngjoo Choi
Seoul National university

Edoardo Gallo
University of Cambridge

Brian Wallace
UCL
​

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