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Herding and Contrarianism in a Financial Trading Experiment with Endogenous Timing

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  • Andreas Park
  • Daniel Sgroi

Abstract

We undertook the first market trading experiments that allowed heterogeneously informed subjects to trade in endogenous time, collecting over 2000 observed trades. Subjects’ decisions were generally in line with the predictions of exogenous-time financial herding theory when that theory is adjusted to allow rational informational herding and contrarianism. While herding and contrarianism did not arise as frequently as predicted by theory, such behavior occurs in a significantly more pronounced manner than in comparable studies with exogenous timing. Types with extreme information traded earliest. Of those with more moderate information, those with signals conducive to contrarianism traded earlier than those with information conducive to herding.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-341.

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Length: 56 pages
Date of creation: 15 Oct 2008
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-341

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Keywords: Herding; Contrarianism; Endogenous-time; Informational Efficiency; Experiments;

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  9. Andreas Park & Daniel Sgroi, 2008. "When Herding and Contrarianism Foster Market Efficiency: A Financial Trading Experiment," Working Papers, University of Toronto, Department of Economics tecipa-316, University of Toronto, Department of Economics.
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  15. Archishman Chakraborty & Bilge Yilmaz, . "Informed Manipulation," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 07-00, Wharton School Rodney L. White Center for Financial Research.
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