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Measuring the Impact of Behavioural Traders in the Market for Closed-end Country Funds from 2002 to 2009

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  • Hugh Kelley
  • Tom Evans

    (Department of Economics, National University of Ireland, Galway)

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    Abstract

    This work investigates whether traders’ state dependant expectations biases can account for anomalous country fund price movements for a seven year period spanning the 2007-08 banking crises. We provide a multiple agent asset-pricing model that includes both rational traders and traders who display biases in expectations formation following market states with large amounts of fundamental value variance or CNN financial news. Importantly, traders’ biased behavior is based on evidence of state-dependant over- or under-reaction biases observed in asset price forecasting experiments. Closed-form solutions from the multi-agent pricing model predict a multiple driver property of fund prices. Empirical tests for these drivers’ influence in field data finds that a significant amount of out-of-sample country fund discount variance can be explained by dummies representing the occurrence of behavioral bias trigger states.

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    Bibliographic Info

    Paper provided by National University of Ireland Galway, Department of Economics in its series Working Papers with number 0148.

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    Date of creation: 2009
    Date of revision: 2009
    Handle: RePEc:nig:wpaper:0148

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    Related research

    Keywords: Algorithmic Trading; MACD;

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