Investor behavior, information disclosure strategy and counterparty credit risk contagion

Abstract

Counterparty credit risk caused by the excessive expansion of credit derivatives is becoming more and more prominent. The study of evolution mechanism of its contagion will help the financial regulators set up a scientific and accessible prevention and control strategy. From the cross perspective of behavioral finance and information economics, this study analyzes the mechanism of counterparty credit risk contagion. Based on the epidemic model, a network model of it is built with the consideration of investor behavior and information disclosure strategy. The network topology characteristics of it are analyzed in theory. Meanwhile, this study analyzes the evolution characteristics of it in numerical simulation. The main conclusions are as follows: First, investor behavior or information disclosure strategy only affects counterparty credit risk contagion in local credit asset network, while it is gradually disappearing in global credit asset network. Second, noise can enhance the impact intensity of investor behavior or information disclosure strategy on counterparty credit risk contagion, and lead to the spread of counterparty credit risk synchronously in local and global credit asset networks. Third, information transmission rate has “local strengthening effect” on investor behavior. The timing of information release and the tendency of information disclosure exert a “global suppression effect” on the influence of investors, and the ability of investor information decision-making has a “local suppression effect” on the timing of information release and the tendency of information disclosure. Through the comprehensive adjustment of investor behavior and information disclosure strategy, the goal of preventing and controlling counterparty credit risk contagion can be realized in local and global credit asset networks.