Traders’ heterogeneity and bubble-crash patterns in experimental asset markets

Baghestanian, Sascha; Lugovskyy, Volodymyr; Puzzello, Daniela

doi:10.1016/j.jebo.2015.06.007

Cited by 39 publications

(51 citation statements)

References 52 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Moreover, this rationale directly translates to simulation models used in the experimental literature to Individual speculative behavior and overpricing in... identify speculative trading patterns in the SSW design (e.g. Baghestanian et al 2015), which are based on noise trader theory (De Long et al 1990a).…”

Section: Discussionmentioning

confidence: 99%

“…To answer this question, and in the wake of LNP, a number of studies attempt to identify specific trading patterns from experimental trading data ex-post (Haruvy and Noussair 2006;Caginalp and Ilieva 2008;Haruvy et al 2014;Baghestanian et al 2015). The model of De Long et al (1990b) is commonly used to classify market subjects into three types: rational speculators (RAs) look forward and trade on (correctly) expected future price movements, while momentum traders (MMs) look back and chase recent trends by extrapolation.…”

mentioning

confidence: 99%

“…FVs purchase (sell) when today's market prices are below (above) the fundamental value of the asset. 3 See, in particular, Haruvy and Noussair (2006), Haruvy et al (2014) and Baghestanian et al (2015). 4 Assume, for example, a bubble market where prices start at the fundamental value in Period 1, then increase continuously until Period 14, where they peak and then monotonously decrease to the fundamental value at the end of trading in Period 20.…”

mentioning

confidence: 99%

See 2 more Smart Citations

Individual speculative behavior and overpricing in experimental asset markets

2018

View full text Add to dashboard Cite

A rich history of theoretical models in finance shows that speculation can lead to overpricing and price bubbles. We provide evidence that, indeed, individual speculative behavior fuels overpricing in (experimental) asset markets. In a first step, we elicit individual speculative behavior in a one-shot setting with a novel speculation elicitation task (SET). In a second step, we use this measure of speculative behavior to compose dynamic, continuous double auction markets in line with Smith et al. (Econometrica 56(5):1119(Econometrica 56(5): -1151(Econometrica 56(5): , 1988). We find significant higher overpricing in markets with traders who exhibited more speculative behavior in the individual SET. However, we find no such differences in overpricing when we test for alternative explanations, using a market environment introduced by Lei, Noussair, and Plott (Econometrica 69(4):831-859, 2001) where speculation is impossible. Taken together, our results corroborate the notion that speculation is an important factor in overpricing and bubble formation if market environments allow for the pursuit of capital gains.

show abstract

Section: Discussionmentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

See 1 more Smart Citation

Individual speculative behavior and overpricing in experimental asset markets

2018

View full text Add to dashboard Cite

show abstract

“…The issue of how trader heterogeneity may impact market-level outcomes or asset mispricing is an important one that has received considerable attention in the literature (De Long et al 1990;Griffin et al 2011;Baghestanian et al 2015;Akiyama et al 2017;Hanaki et al 2017). 1 Related to our topic is previous research that has identified "circadian desynchronosis" as a cause of the negative effect of daylight savings time (DST) changes on stock returns (Kamstra et al 2000).…”

Section: Introductionmentioning

confidence: 99%

Trading while sleepy? Circadian mismatch and mispricing in a global experimental asset market

2019

View full text Add to dashboard Cite

Traders in global markets operate at different local times-of-day. This implies heterogeneity in circadian timing and likely sleepiness or alertness of those traders operating at less or more optimal times of the day, respectively. This, in turn, may lead to differences in both individual-level trader behavior as well as market level outcomes. We examined these factors by administering single-location and global sessions of an online asset market experiment that regularly produces mispricing and valuation bubbles. Global sessions involved real time trades between subjects in New Zealand and the U.S (i.e., "global" markets) with varied local times of day for each location. Individual traders at suboptimal times of day (or, "circadian mismatched" traders) engaged in riskier trading strategies, such as holding shares (the riskier asset) in later trading rounds and mispricing shares to a greater degree. These strategies resulted in lower earnings for circadian mismatched traders, especially in heterogeneous markets that also included traders at more optimal times-of-day. These differences were also reflected in market level outcomes. Markets with higher circadian mismatch heterogeneity across traders were more likely to exhibit longer lasting asset bubbles and greater share turnover volume. Overall, our results draw attention to a unique, but underappreciated, factor present across traders in global market environments, namely, differences in sleepiness across traders. Thus, this study hopes to highlight the role of circadian mismatch in attempting to understand trader behavior and, ultimately, market volatility.

show abstract

“…Thus, the inflow of new traders associated with such changes in market conditions is very likely to cause a bubble to emerge. Constructing a model of heterogeneous agents, including both sophisticated (those who try to act strategically given their belief about others) and naive (those who simply follow certain rules of thumb) agents, similar to those by Haruvy and Noussair (2006) and Baghestanian et al (2013), and investigating whether such a model could provide deeper insight of the experimental data, would be fruitful future research.…”

Section: Resultsmentioning

confidence: 99%

How do experienced traders respond to inflows of inexperienced traders? An experimental analysis

Akiyama

Hanaki

Ishikawa

2014

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

We conducted asset market experiments where one experienced subject (EH) interacts with five inexperienced subjects (1EH5H) to investigate how EHs change their price forecasts and trading strategies when faced with strategic uncertainty caused by inflows of inexperienced subjects. Only half the EHs initially forecasted prices deviating more from the fundamental values in 1EH5H than in the final round of the experiment in which they had previously participated. Furthermore, the majority of our EHs did not change their trading behaviour. Many EHs act as price stabilisers when the inflow of inexperienced subjects is not associated with other changes in market conditions.

show abstract

Traders’ heterogeneity and bubble-crash patterns in experimental asset markets

Cited by 39 publications

References 52 publications

Individual speculative behavior and overpricing in experimental asset markets

Individual speculative behavior and overpricing in experimental asset markets

Trading while sleepy? Circadian mismatch and mispricing in a global experimental asset market

How do experienced traders respond to inflows of inexperienced traders? An experimental analysis

Contact Info

Product

Resources

About