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Financial markets in the laboratory: an experimental analysis of some stylized facts

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  • Andrea Morone

Abstract

This paper provides experimental evidence explaining a number of stylized facts associated with the behaviour of financial returns, in particular the fat tailed nature of their distribution and the persistence in their volatility. By means of a laboratory experiment, we investigate the effect of the quantity and quality of information present in a financial market upon its stylized facts, showing how both the quality and quantity of information might have an impact on volatility clustering and the emergence of fat tail returns.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/14697680701463786
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 8 (2008)
Issue (Month): 5 ()
Pages: 513-532

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Handle: RePEc:taf:quantf:v:8:y:2008:i:5:p:513-532

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Related research

Keywords: Herd behaviour; Fat tail volatility clustering;

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References

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  6. Thomas Lux & Didier Sornette, 1999. "On Rational Bubbles and Fat Tails," Discussion Paper Serie B 458, University of Bonn, Germany.
  7. Annamaria Fiore & Andrea Morone, 2005. "Is playing alone in the darkness sufficient to prevent informational cascades?," Experimental 0503002, EconWPA.
  8. Gaunersdorfer, A. & Hommes, C.H. & Wagener, F.O.O., 2000. "Bifurcation Routes to Volatility Clustering," CeNDEF Working Papers 00-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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  10. Gaunersdorfer, A. & Hommes, C.H., 2000. "A Nonlinear Structural Model for Volatility Clustering," CeNDEF Working Papers 00-02, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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  18. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  19. Jansen, Dennis W & de Vries, Casper G, 1991. "On the Frequency of Large Stock Returns: Putting Booms and Busts into Perspective," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 18-24, February.
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Citations

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Cited by:
  1. Andrea Morone & Eleni Samanidou, 2008. "A simple note on herd behaviour," Journal of Evolutionary Economics, Springer, vol. 18(5), pages 639-646, October.
  2. Giovanni Ferri & Andrea Morone, 2008. "The Effect of Rating Agencies on Herd Behaviour," EERI Research Paper Series EERI_RP_2008_21, Economics and Econometrics Research Institute (EERI), Brussels.
  3. Vicente Medina Martínez & Ángel Pardo Tornero, 2012. "Stylized facts of CO2 returns," Working Papers. Serie AD 2012-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Kurz, Claudia & Kurz-Kim, Jeong-Ryeol, 2013. "What determines the dynamics of absolute excess returns on stock markets?," Economics Letters, Elsevier, vol. 118(2), pages 342-346.
  5. Morone, Andrea & Fiore, Annamaria & Sandri, Serena, 2007. "On the absorbability of herd behaviour and informational cascades: an experimental analysis," Dresden Discussion Paper Series in Economics 15/07, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.

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