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Herd Behavior in Financial Markets

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Author Info

  • Marco Cipriani
  • Antonio Guarino

Abstract

We study herd behavior in a laboratory financial market with financial market professionals. We compare two treatments, one in which the price adjusts to the order flow so that herding should never occur, and one in which event uncertainty makes herding possible. In the first treatment, subjects herd seldom, in accordance with both the theory and previous experimental evidence on student subjects. A proportion of subjects, however, engage in contrarianism, something not accounted for by the theory. In the second treatment, the proportion of herding decisions increases, but not as much as theory suggests; moreover, contrarianism disappears altogether.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/141.

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Length: 28
Date of creation: 01 Jun 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/141

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Related research

Keywords: Price controls; Economic models; Data analysis; trade imbalance; financial markets; probability; predictions; experimental design; prediction; standard deviation; probabilities; statistics; random variable; computation; samples; capital markets; surveys; dummy variable; mathematics; experimental data; regression analysis;

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References

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Citations

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Cited by:
  1. Antonio Guarino & Marco Cipriani, 2010. "Estimating a Structural Model of Herd Behavior in Financial Markets," IMF Working Papers 10/288, International Monetary Fund.
  2. John List & Imran Rasul, 2010. "Field experiments in labor economics," Artefactual Field Experiments 00092, The Field Experiments Website.
  3. Christoph March & Sebastian Krügel & Anthony Ziegelmeyer, 2012. "Do We Follow Private Information when We Should? Laboratory Evidence on Nave Herding," Jena Economic Research Papers 2012-002, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  4. Alain Cohn & Jan Engelmann & Ernst Fehr & Michel Maréchal, 2013. "Evidence for countercyclical risk aversion: an experiment with financial professionals," UBSCENTER - Working Papers 004, UBS International Center of Economics in Society - Department of Economics - University of Zurich.

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