IDEAS home Printed from https://ideas.repec.org/p/apl/wpaper/17-06.html
   My bibliography  Save this paper

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

Author

Listed:
  • David L. Dickinson
  • Ananish Chaudhuri
  • Ryan Greenaway-McGrevy

Abstract

Traders in global markets operate at different local times-of-day. Suboptimal times-of-day may produce sleepiness due to daily variations in sleep/wake patterns and possibly also increased accumulation of hours awake. Global asset markets imply significantly increased heterogeneity in circadian timing, and likely sleepiness, of trader decisions compared to localized markets. We examine these factors by administering single-location and global sessions of an online asset market experiment that regularly produces valuation bubble and crash events. Global sessions involved real time trades between subjects in two locations 16 time zones apart (i.e., “global” markets) and at varied local times of day across sessions. We find asset market bubbles occur in all sessions, but global markets had significantly more extreme and longer duration valuation bubbles. Additionally, subjects at the most suboptimal times-of-day held significantly more asset shares in their portfolios in late trading rounds compared to other subjects—a risky strategy with overvalued shares. Overall, our results highlight a unique but underappreciated factor present across traders in global market environments. They also point to the importance of a relatively common cognitive state (i.e., suboptimal time-of-day) in attempting to understand trader behavior and, ultimately, market outcomes. Key Words: Asset Markets, Experiments, Bubbles, Sleep, Circadian rhythm

Suggested Citation

  • David L. Dickinson & Ananish Chaudhuri & Ryan Greenaway-McGrevy, 2017. "Trading while sleepy? Circadian mismatch and excess volatility in a global experimental asset market," Working Papers 17-06, Department of Economics, Appalachian State University.
    • Handle: RePEc:apl:wpaper:17-06
    as

    Download full text from publisher

    File URL: http://econ.appstate.edu/RePEc/pdf/wp1706.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lisa A. Kramer & Mark J. Kamstra & Maurice D. Levi, 2000. "Losing Sleep at the Market: The Daylight Saving Anomaly," American Economic Review, American Economic Association, vol. 90(4), pages 1005-1011, September.
    2. Jose A. Scheinkman & Wei Xiong, 2003. "Overconfidence and Speculative Bubbles," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1183-1219, December.
    3. Marco Castillo & David L. Dickinson & Ragan Petrie, 2017. "Sleepiness, choice consistency, and risk preferences," Theory and Decision, Springer, vol. 82(1), pages 41-73, January.
    4. Michailova, Julija, 2010. "Overconfidence and bubbles in experimental asset markets," MPRA Paper 26388, University Library of Munich, Germany.
    5. Brice Corgnet & Roberto Hernán-González & Praveen Kujal & David Porter, 2015. "The Effect of Earned Versus House Money on Price Bubble Formation in Experimental Asset Markets," Review of Finance, European Finance Association, vol. 19(4), pages 1455-1488.
    6. Kirchler, Erich & Maciejovsky, Boris, 2002. "Simultaneous Over- and Underconfidence: Evidence from Experimental Asset Markets," Journal of Risk and Uncertainty, Springer, vol. 25(1), pages 65-85, July.
    7. Mark Grinblatt & Matti Keloharju, 2009. "Sensation Seeking, Overconfidence, and Trading Activity," Journal of Finance, American Finance Association, vol. 64(2), pages 549-578, April.
    8. Andreas Hefti & Steve Heinke & Frédéric Schneider, 2016. "Mental capabilities, trading styles, and asset market bubbles: theory and experiment," ECON - Working Papers 234, Department of Economics - University of Zurich.
    9. David Dickinson & Todd McElroy, 2012. "Circadian effects on strategic reasoning," Experimental Economics, Springer;Economic Science Association, vol. 15(3), pages 444-459, September.
    10. Antoine J. Bruguier & Steven R. Quartz & Peter Bossaerts, 2010. "Exploring the Nature of “Trader Intuition”," Journal of Finance, American Finance Association, vol. 65(5), pages 1703-1723, October.
    11. AJ A. Bostian & Charles A. Holt, 2009. "Price Bubbles with Discounting: A Web-Based Classroom Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 40(1), pages 27-37, January.
    12. Richard Deaves & Erik Lüders & Guo Ying Luo, 2009. "An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity," Review of Finance, European Finance Association, vol. 13(3), pages 555-575.
    13. Baghestanian, S. & Lugovskyy, V. & Puzzello, D., 2015. "Traders’ heterogeneity and bubble-crash patterns in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 82-101.
    14. Brice Corgnet & Mark DeSantis & David Porter, 2015. "What Makes a Good Trader? On the Role of Quant Skills, Behavioral Biases and Intuition on Trader Performance," Working Papers 15-17, Chapman University, Economic Science Institute.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Coppock, Lee A. & Harper, Daniel Q. & Holt, Charles A., 2021. "Capital constraints and asset bubbles: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 75-88.
    2. Martin G Kocher & Konstantin E Lucks & David Schindler, 2019. "Unleashing Animal Spirits: Self-Control and Overpricing in Experimental Asset Markets," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2149-2178.
    3. Kocher, Martin G. & Lucks, Konstantin E. & Schindler, David, 2016. "Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets," Discussion Papers in Economics 27572, University of Munich, Department of Economics.
    4. John R. Nofsinger & Corey A. Shank, 2019. "DEEP sleep: The impact of sleep on financial risk taking," Review of Financial Economics, John Wiley & Sons, vol. 37(1), pages 92-105, January.
    5. Butler, David & Cheung, Stephen L., 2018. "Mind, Body, Bubble! Psychological and Biophysical Dimensions of Behavior in Experimental Asset Markets," IZA Discussion Papers 11563, Institute of Labor Economics (IZA).
    6. David L. Dickinson & Andrew R. Smith & Robert McClelland, 2019. "An Examination of Circadian Impacts on Judgments," Working Papers 19-11, Department of Economics, Appalachian State University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David L. Dickinson & Ananish Chaudhuri & Ryan Greenaway-McGrevy, 2020. "Trading while sleepy? Circadian mismatch and mispricing in a global experimental asset market," Experimental Economics, Springer;Economic Science Association, vol. 23(2), pages 526-553, June.
    2. Utz Weitzel & Christoph Huber & Jürgen Huber & Michael Kirchler & Florian Lindner & Julia Rose & Lauren Cohen, 2020. "Bubbles and Financial Professionals [Margin, short sell, and lotteries in experimental asset markets]," The Review of Financial Studies, Society for Financial Studies, vol. 33(6), pages 2659-2696.
    3. Michailova, Julija, 2010. "Development of the overconfidence measurement instrument for the economic experiment," MPRA Paper 34799, University Library of Munich, Germany, revised Nov 2011.
    4. Brice Corgnet & Mark Desantis & David Porter, 2018. "What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance," Journal of Finance, American Finance Association, vol. 73(3), pages 1113-1137, June.
    5. Hanaki, Nobuyuki & Akiyama, Eizo & Ishikawa, Ryuichiro, 2018. "Behavioral uncertainty and the dynamics of traders’ confidence in their price forecasts," Journal of Economic Dynamics and Control, Elsevier, vol. 88(C), pages 121-136.
    6. Corgnet, Brice & DeSantis, Mark & Porter, David, 2020. "The distribution of information and the price efficiency of markets," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    7. Martin G Kocher & Konstantin E Lucks & David Schindler, 2019. "Unleashing Animal Spirits: Self-Control and Overpricing in Experimental Asset Markets," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2149-2178.
    8. Helen X. H. Bao & Steven Haotong Li, 2016. "Overconfidence And Real Estate Research: A Survey Of The Literature," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-24, September.
    9. Corgnet, Brice & Deck, Cary & DeSantis, Mark & Porter, David, 2018. "Information (non)aggregation in markets with costly signal acquisition," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 286-320.
    10. Michailova, Julija, 2010. "Overconfidence, Risk Aversion and Individual Financial Decisions in Experimental Asset Markets," MPRA Paper 53114, University Library of Munich, Germany, revised Jan 2014.
    11. Aragón, Nicolás & Roulund, Rasmus Pank, 2020. "Confidence and decision-making in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 688-718.
    12. Ahrens, Steffen & Bosch-Rosa, Ciril & Roulund, Rasmus, 2019. "Price Dynamics and Trader Overconfidence," Rationality and Competition Discussion Paper Series 161, CRC TRR 190 Rationality and Competition.
    13. Koellinger, Ph.D. & Treffers, T., 2012. "Joy leads to Overconfidence, and a Simple Remedy," ERIM Report Series Research in Management ERS-2012-001-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    14. Michailova, Julija, 2010. "Overconfidence and bubbles in experimental asset markets," MPRA Paper 26388, University Library of Munich, Germany.
    15. Bregu, Klajdi, 2020. "Overconfidence and (Over)Trading: The Effect of Feedback on Trading Behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 88(C).
    16. Cueva, Carlos & Iturbe-Ormaetxe, Iñigo & Ponti, Giovanni & Tomás, Josefa, 2019. "Boys will still be boys: Gender differences in trading activity are not due to differences in (over)confidence," Journal of Economic Behavior & Organization, Elsevier, vol. 160(C), pages 100-120.
    17. Praveen Kujal & Owen Powell, 2017. "Bubbles in Experimental Asset Markets," Working Papers 17-01, Chapman University, Economic Science Institute.
    18. Soleman Alsabban & Omar Alarfaj, 2020. "An Empirical Analysis of Behavioral Finance in the Saudi Stock Market: Evidence of Overconfidence Behavior," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 73-86.
    19. Marquardt, Philipp & Noussair, Charles N & Weber, Martin, 2019. "Rational expectations in an experimental asset market with shocks to market trends," European Economic Review, Elsevier, vol. 114(C), pages 116-140.
    20. David L. Dickinson & Andrew R. Smith & Robert McClelland, 2019. "An Examination of Circadian Impacts on Judgments," Working Papers 19-11, Department of Economics, Appalachian State University.

    More about this item

    Keywords

    asset markets; experiments; bubbles; sleep; circadian rhythm;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:apl:wpaper:17-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: O. Ashton Morgan (email available below). General contact details of provider: https://edirc.repec.org/data/deappus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.