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How Do Experienced Traders Respond to Inflows of Inexperienced Traders? An Experimental Analysis

Author

Listed:
  • Eizo Akiyama

    () (Faculty of Engineering, Information and Systems, University of Tsukuba)

  • Nobuyuki Hanaki

    () (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, and IUF)

  • Ryuichiro Ishikawa

    () (Faculty of Engineering, Information and Systems, University of Tsukuba)

Abstract

This paper develops a simple business-cycle model in which financial shocks have large macroeconomic effects when private agents are gradually learning their uncertain environment. When agents update their beliefs about the parameters that govern the unobserved process driving financial shocks to the leverage ratio, the responses of output and other aggregates under adaptive learning are significantly larger than under rational expectations. In our benchmark case calibrated using US data on leverage, debt-to-GDP and land value-to-GDP ratios for 1996Q1-2008Q4, learning amplifies leverage shocks by a factor of about three, relative to rational expectations. When fed with actual leverage innovations observed over that period, the learning model predicts a sizeable recession in 2008-10, while its rational expectations counterpart predicts a counter-factual expansion. In addition, we show that procyclical leverage reinforces the amplification due to learning and, accordingly, that macro-prudential policies enforcing countercyclical leverage dampen the effects of leverage shocks.Classification-JEL: C90, D84.

Suggested Citation

  • Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2013. "How Do Experienced Traders Respond to Inflows of Inexperienced Traders? An Experimental Analysis," AMSE Working Papers 1359, Aix-Marseille School of Economics, Marseille, France, revised 18 Dec 2013.
  • Handle: RePEc:aim:wpaimx:1359
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Michael Razen & J�rgen Huber & Michael Kirchler, 2016. "Cash Inflow and Trading Horizon in Asset Markets," Working Papers 2016-06, Faculty of Economics and Statistics, University of Innsbruck.
    2. Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2018. "Behavioral uncertainty and the dynamics of traders' confidence in their price forecasts ," Post-Print hal-01712301, HAL.
    3. Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2017. "Effects of Eliciting Long-run Price Forecasts on Market Dynamics in Asset Market Experiments," GREDEG Working Papers 2017-26, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    4. Nobuyuki Hanaki & Angela Sutan & Marc Willinger, 2016. "The Strategic Environment Effect in Beauty Contest Games," GREDEG Working Papers 2016-05, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    5. repec:eee:dyncon:v:88:y:2018:i:c:p:121-136 is not listed on IDEAS
    6. A. Penalver & N. Hanaki & E. Akiyama & Y. Funaki & R. Ishikawa, 2017. "A Quantitative Easing Experiment," Working papers 651, Banque de France.
    7. repec:eee:dyncon:v:88:y:2018:i:c:p:51-69 is not listed on IDEAS
    8. repec:eee:gamebe:v:106:y:2017:i:c:p:188-208 is not listed on IDEAS
    9. Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2017. "Behavioral Uncertainty and the Dynamics of Traders' Confidence in their Price Forecasts," GREDEG Working Papers 2017-18, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    10. Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2016. "A Methodological Note on Eliciting Price Forecasts in Asset Market Experiments," GREDEG Working Papers 2016-02, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    11. Nobuyuki Hanaki & Eizo Akiyama & Yukihiko Funaki & Ryuichiro Ishikawa, 2017. "Diversity in Cognitive Ability Enlarges Mispricing in Experimental Asset Markets," Working Papers halshs-01202088, HAL.
    12. Tomoe Hoshihata & Ryuichiro Ishikawa & Nobuyuki Hanaki & Eizo Akiyama, 2017. "Flat Bubbles in Long-Horizon Experiments: Results from two Market Conditions," GREDEG Working Papers 2017-32, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    13. repec:eme:rexezz:s0193-230620140000017002 is not listed on IDEAS
    14. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2017. "It is Not Just Confusion! Strategic Uncertainty in an Experimental Asset Market," Post-Print halshs-01294917, HAL.
    15. Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2017. "Behavioral Uncertainty and the dynamics of traders' confidence in their Price forecasts," Working Papers halshs-01622466, HAL.
    16. Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2018. "Effects of different ways of incentivizing price forecasts on market dynamics and individual decisions in asset market experiments ," Post-Print hal-01712305, HAL.
    17. Tiziana Assenza & Te Bao & Cars Hommes & Domenico Massaro, 2014. "Experiments on Expectations in Macroeconomics and Finance," Research in Experimental Economics,in: Experiments in Macroeconomics, volume 17, pages 11-70 Emerald Publishing Ltd.
    18. Razen, Michael & Huber, Jürgen & Kirchler, Michael, 2017. "Cash inflow and trading horizon in asset markets," European Economic Review, Elsevier, vol. 92(C), pages 359-384.
    19. Loukas Balafoutas & Simon Czermak & Marc Eulerich & Helena Fornwagner, 2017. "Incentives for dishonesty: An experimental study with internal auditors," Working Papers 2017-06, Faculty of Economics and Statistics, University of Innsbruck.
    20. Kirchler, Michael & Bonn, Caroline & Huber, Jürgen & Razen, Michael, 2015. "The “inflow-effect”—Trader inflow and price efficiency," European Economic Review, Elsevier, vol. 77(C), pages 1-19.

    More about this item

    Keywords

    Strategic uncertainty; Experience; Heterogeneity; Experiment; Asset markets.;

    JEL classification:

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

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