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Herd Behavior in a Laboratory Financial Market

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  • Marco Cipriani

    (George Washington University)

  • Antonio Guarino

    (UCL)

Abstract

We study herd behavior in a laboratory Þnancial market where a sequence of subjects trades an asset whose value is unknown. In two treatments the price is updated according to a deterministic rule based on the order ßow, and in another it is updated by experimental participants. Theory predicts that agents should never herd. Our experimental results are in line with this prediction. Nevertheless, we observe a phenomenon that cannot be accounted for by the theory. In some cases, subjects decide not to use their private information and choose not to trade. In other cases, they ignore their private information to trade against the market (contrarian behavior). (JEL C92, D8, G14)

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File URL: http://128.118.178.162/eps/exp/papers/0502/0502002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Experimental with number 0502002.

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Length: 30 pages
Date of creation: 17 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpex:0502002

Note: Type of Document - pdf; pages: 30
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Web page: http://128.118.178.162

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