Noise Trading in a Laboratory Financial Market: A Maximum Likelihood Approach
AbstractWe study the extent to which, in a laboratory financial market, noise trading can stem from subjects' irrationality. We estimate a structural model of sequential trading by using experimental data. In the experiment, subjects receive private information on the value of an asset and trade it in sequence with a market maker. We find that, in the laboratory, the noise due to the irrational use of private information accounts for 35% of the decisions. When subjects act as noise traders, they abstain from trading 67% of the time. When they trade, the probability that they buy is significantly higher than the probability that they sell. (JEL: C92, D8, G14) Copyright (c) 2005 The European Economic Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 3 (2005)
Issue (Month): 2-3 (04/05)
Contact details of provider:
Web page: http://www.mitpressjournals.org/jeea
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Marco Cipriani & Antonio Guarino, 2008.
"Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals,"
IMF Working Papers
08/141, International Monetary Fund.
- Marco Cipriani & Antonio Guarino, 2009. "Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 206-233, 03.
- Cipriani, M. & Guarino, A., 2009. "Herd behavior in financial markets: an experiment with financial market professionals," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
- Antonio Guarino & Marco Cipriani, 2008. "Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals," WEF Working Papers 0047, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
- Marco Cipriani & Antonio Guarino, 2008. "Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals," Working Papers 2009-16, The George Washington University, Institute for International Economic Policy.
- Cipriani, Marco & Guarino, Antonio, 2008. "Transaction costs and informational cascades in financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 581-592, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).
If references are entirely missing, you can add them using this form.