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Bubbles in hybrid markets: How expectations about algorithmic trading affect human trading

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  • Farjam, Mike
  • Kirchkamp, Oliver

Abstract

Bubbles are omnipresent in lab experiments with asset markets. Most of these experiments are conducted in environments with only human traders. Since today's markets are substantially determined by algorithmic trading, we use a laboratory experiment to measure how human trading depends on the expected presence of algorithmic traders. We find that bubbles are clearly smaller when human traders expect algorithmic traders to be present.

Suggested Citation

  • Farjam, Mike & Kirchkamp, Oliver, 2018. "Bubbles in hybrid markets: How expectations about algorithmic trading affect human trading," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 248-269.
  • Handle: RePEc:eee:jeborg:v:146:y:2018:i:c:p:248-269
    DOI: 10.1016/j.jebo.2017.11.011
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    References listed on IDEAS

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    Cited by:

    1. Butler, David & Cheung, Stephen L., 2018. "Mind, Body, Bubble! Psychological and Biophysical Dimensions of Behavior in Experimental Asset Markets," IZA Discussion Papers 11563, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Bubbles; Expectations; Experiment; Algorithmic traders;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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