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How do experienced traders respond to inflows of inexperienced traders? An experimental analysis

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  • Akiyama, Eizo
  • Hanaki, Nobuyuki
  • Ishikawa, Ryuichiro

Abstract

We conducted asset market experiments where one experienced subject interacts with five inexperienced subjects to investigate how experienced subjects change their price forecasts and trading behavior when faced with strategic uncertainty caused by inflows of inexperienced subjects. Only half the experienced subjects initially forecasted prices deviating more from the fundamental values in the market with five inexperienced subjects than in the final round of the experiment in which they had previously participated. Furthermore, the majority of our experienced subjects did not change their trading behavior. Many experienced subjects act as price stabilizers when the inflow of inexperienced subjects is not associated with other changes in market conditions.

Suggested Citation

  • Akiyama, Eizo & Hanaki, Nobuyuki & Ishikawa, Ryuichiro, 2014. "How do experienced traders respond to inflows of inexperienced traders? An experimental analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 1-18.
  • Handle: RePEc:eee:dyncon:v:45:y:2014:i:c:p:1-18
    DOI: 10.1016/j.jedc.2014.05.007
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    More about this item

    Keywords

    Strategic uncertainty; Experience; Heterogeneity; Experiment; Asset markets;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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