Simulation of Social Media-Driven Bubble Formation in Financial Markets using an Agent-Based Model with Hierarchical Influence Network
This addresses how social media-driven bubbles affect financial markets, but it is incremental as it builds on existing agent-based modeling approaches.
The authors tackled the problem of modeling social media's impact on financial markets by developing an agent-based model with a hierarchical influence network, showing it realistically simulates phenomena like echo chambers and pump-and-dump schemes while conforming to stylized market facts.
We propose that a tree-like hierarchical structure represents a simple and effective way to model the emergent behaviour of financial markets, especially markets where there exists a pronounced intersection between social media influences and investor behaviour. To explore this hypothesis, we introduce an agent-based model of financial markets, where trading agents are embedded in a hierarchical network of communities, and communities influence the strategies and opinions of traders. Empirical analysis of the model shows that its behaviour conforms to several stylized facts observed in real financial markets; and the model is able to realistically simulate the effects that social media-driven phenomena, such as echo chambers and pump-and-dump schemes, have on financial markets.