The paper describes experimental results from a simulated stock market with manipulation of asymmetric information and communication, including conditions intended to promote imitative behaviour and rumour. Price discovery was inefficient when the presence of insiders was disguised, compared to a homogeneous expectations baseline. When the presence of insiders was revealed observed prices became efficient with respect to bad news but not with respect to good news, possibly suggesting loss-averse behaviour. With free communication there was a decrease in both efficiency and price volatility--insider information was masked by noise. Price formation under these conditions was similar to baseline, but with weak evidence of speculative pricing. It is conjectured that other factors than informational noise may be necessary determinants of herd behaviour, but further work is indicated.
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Volume (Year): 9 (2003) Issue (Month): 5 (October) Pages: 393-419 Download reference. The following formats are available: HTML
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Scharfstein, David. & Stein, Jeremy C., 1988.
"Herd behavior and investment,"
Working papers
WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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David M. Cutler & James M. Poterba & Lawrence H. Summers, 1990.
"Speculative Dynamics,"
NBER Working Papers
3242, National Bureau of Economic Research, Inc.
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Other versions:
Culter, D.M. & Poterba, J.M. & Summers, L.H., 1990.
"Speculative Dynamics,"
Working papers
544, Massachusetts Institute of Technology (MIT), Department of Economics.
Cutler, David M & Poterba, James M & Summers, Lawrence H, 1991.
"Speculative Dynamics,"
Review of Economic Studies,
Blackwell Publishing, vol. 58(3), pages 529-46, May.
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