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Quantitative Finance > General Finance

arXiv:1906.01531 (q-fin)
[Submitted on 4 Jun 2019]

Title:Trading in Complex Networks

Authors:Felipe M. Cardoso, Carlos Gracia-Lazaro, Frederic Moisan, Sanjeev Goyal, Angel Sanchez, Yamir Moreno
View a PDF of the paper titled Trading in Complex Networks, by Felipe M. Cardoso and 5 other authors
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Abstract:Global supply networks in agriculture, manufacturing, and services are a defining feature of the modern world. The efficiency and the distribution of surpluses across different parts of these networks depend on choices of intermediaries. This paper conducts price formation experiments with human subjects located in large complex networks to develop a better understanding of the principles governing behavior. Our first finding is that prices are larger and that trade is significantly less efficient in small-world networks as compared to random networks. Our second finding is that location within a network is not an important determinant of pricing. An examination of the price dynamics suggests that traders on cheapest -- and hence active -- paths raise prices while those off these paths lower them. We construct an agent-based model (ABM) that embodies this rule of thumb. Simulations of this ABM yield macroscopic patterns consistent with the experimental findings. Finally, we extrapolate the ABM on to significantly larger random and small world networks and find that network topology remains a key determinant of pricing and efficiency.
Comments: 20 pages including a SI file describing the experiment and additional statistical analyses
Subjects: General Finance (q-fin.GN); Physics and Society (physics.soc-ph)
Cite as: arXiv:1906.01531 [q-fin.GN]
  (or arXiv:1906.01531v1 [q-fin.GN] for this version)
  https://doi.org/10.48550/arXiv.1906.01531
arXiv-issued DOI via DataCite

Submission history

From: Yamir Moreno [view email]
[v1] Tue, 4 Jun 2019 15:43:08 UTC (896 KB)
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