Experimental evidence of bank runs as pure coordination failures

Arifovic, Jasmina; Jiang, Janet Hua; Xu, Yiru

doi:10.1016/j.jedc.2013.06.016

Cited by 67 publications

(51 citation statements)

References 30 publications

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“…Since π C,i t (π F,i t ) represents the probability of selecting technical (fundamental) trading, it can also be stated that I i t = 1 (I i t = 0) if speculator i chooses technical (fundamental) analysis to determine his orders. This context was already presented in (2). Now, the number of speculators relying on technical and fundamental trading rules can easily be determined by…”

Section: A (Very) Simple Large-scale Agent-based Modelmentioning

confidence: 96%

“…To sum up, our paper contributes to the literature by (1) proposing a novel large-scale agentbased financial market model, (2) demonstrating under which conditions such a numerically intensive model can be converted into an analytically tractable small-scale model, and (3) showing that both our small-scale and large-scale models have the ability to match the stylized facts of financial markets. The relevance of our paper may also be seen from the following perspective.…”

Section: Introductionmentioning

confidence: 93%

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Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models

Schmitt

Westerhoff

2017

J Evol Econ

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe propose a novel agent-based financial market framework in which speculators usually follow their own individual technical and fundamental trading rules to determine their orders. However, there are also sunspot-initiated periods in which their trading behavior is correlated. We are able to convert our (very) simple large-scale agent-based model into a simple small-scale agent-based model and show that our framework is able to produce bubbles and crashes, excess volatility, fattailed return distributions, serially uncorrelated returns and volatility clustering. While lasting volatility outbursts occur if the mass of speculators switches to technical analysis, extreme price changes emerge if sunspots coordinate temporarily the behavior of speculators.

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Section: A (Very) Simple Large-scale Agent-based Modelmentioning

confidence: 96%

Section: Introductionmentioning

confidence: 93%

Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models

Schmitt

Westerhoff

2017

J Evol Econ

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“…A corresponding experimental literature on financial fragility has also developed in the last several years. See, for example, Madiés (), Garratt and Keister (), Schotter and Yorulmazer (), Arifovic, Jaing and Xu (, 2015), Klos and Sträter (), Trautmann and Vlahu (), Kiss, Rodriguez‐Lara, and Rosa‐Garcia (, , ), Brown, Trautmann, and Vlahu (), and Chakravarty, Fonseca, and Kaplan () . These studies cover a variety of issues pertaining to financial fragility, ranging from evaluating the behavioral implications of variants of the Diamond‐Dybvig model to broader issues, such as interbank contagion and strategic asset defaults.…”

Section: Literature Reviewmentioning

confidence: 99%

On Freezing Depositor Funds at Financially Distressed Banks: An Experimental Analysis

Davis¹,

Reilly²

2016

J of Money Credit Banking

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This article reports an experiment conducted to evaluate the effects of alterations in the terms of repayments to depositors following a liquidity suspension, as well as the effect of alterations in the publicity of information about withdrawal behavior on the fragility of distressed banks. Results indicate that a “tough” renegotiation stance of protecting depositors who maintain their money in the bank, can quite effectively promote stability. Information provided to depositors regarding past withdrawal behavior weakens the effectiveness of a tough renegotiation policy but reduces fragility somewhat for a more lenient rescheduling condition.

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“…See also the experiments of Madies (2006), Arifovic et al (2013) and Kiss et al (2012). Some classic papers have shown the importance of fundamentals to bank depositors' withdrawal decisions during the Great Depression (Gorton (1988), Calomiris & Gorton (1991), Saunders & Wilson (1996), and Calomiris & Mason (2003)).…”

Section: Introductionmentioning

confidence: 99%

Self-Fulfilling Runs: Evidence from the U.S. Life Insurance Industry

Foley-Fisher¹,

Narajabad²,

Verani³

2015

FEDS

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Is liquidity creation in shadow banking vulnerable to self-fulfilling runs? Investors typically decide to withdraw simultaneously, making it challenging to identify self-fulfilling runs. In this paper, we exploit the contractual structure of funding agreement-backed securities offered by U.S. life insurers to institutional investors. The contracts allow us to obtain variation in investors' expectations about other investors' actions that is plausibly orthogonal to changes in fundamentals. We find that a run on U.S. life insurers during the summer of 2007 was partly due to self-fulfilling expectations. Our findings suggest that other contemporaneous runs in shadow banking by institutional investors may have had a self-fulfilling component.JEL Codes: G22, G01, G14

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Experimental evidence of bank runs as pure coordination failures

Cited by 67 publications

References 30 publications

Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models

Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models

On Freezing Depositor Funds at Financially Distressed Banks: An Experimental Analysis

Self-Fulfilling Runs: Evidence from the U.S. Life Insurance Industry

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