Circuit breakers with uncertainty about the presence of informed agents: I know what you know . . . I think
This study conducts experimental asset markets to examine the effects of circuit breaker rules on market behavior when agents are uncertain about the presence of private information. Our results unequivocally indicate that circuit breakers fail to temper unwarranted price movements in periods without private information. Agents appear to mistakenly infer that others possess private information, causing price to move away from fundamental value. Allocative efficiencies in our markets are high across all regimes. Circuit breakers perform no useful function in our experimental asset markets.
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| Length: | |
| Date of creation: | 2002 |
| Handle: | RePEc:fip:fedawp:2002-25 |
| Contact details of provider: | Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309 Phone: 404-521-8500 Web page: http://www.frbatlanta.org/ Email: More information through EDIRC
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References listed on IDEAS
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- Peter Bossaerts & Charles Plott, 2004.
"Basic Principles of Asset Pricing Theory: Evidence from Large-Scale Experimental Financial Markets,"
Review of Finance,
Springer, vol. 8(2), pages 135-169.
- Peter Bossaerts & Charles Plott, 2004. "Basic Principles of Asset Pricing Theory: Evidence from Large-Scale Experimental Financial Markets," Review of Finance, European Finance Association, vol. 8(2), pages 135-169.
- Bossaerts, Peter & Plott, Charles, 2000. "Basic Principles Of Asset Pricing Theory: Evidence From Large-Scale Experimental Financial Markets," CEPR Discussion Papers 2578, C.E.P.R. Discussion Papers.
- Bossaerts, Peter & Plott, Charles R., 2000. "Basic Principles of Asset Pricing Theory: Evidence From Large-Scale Experimental Financial Markets," Working Papers 1070, California Institute of Technology, Division of the Humanities and Social Sciences.
- Ackert, Lucy F. & Church, Bryan & Jayaraman, Narayanan, 2001. "An experimental study of circuit breakers: The effects of mandated market closures and temporary halts on market behavior," Journal of Financial Markets, Elsevier, vol. 4(2), pages 185-208, April.
- Lucy F. Ackert & Bryan K. Church & Narayanan Jayaraman, 1999. "An experimental study of circuit breakers: the effects of mandated market closures and temporary halts on market behavior," FRB Atlanta Working Paper 99-1, Federal Reserve Bank of Atlanta.
- Banks, Jeffrey S., "undated". "Price-Conveyed Information vs. Observed Insider Behavior: A Note on Rational Expectations Convergence," Working Papers 523, California Institute of Technology, Division of the Humanities and Social Sciences.
- Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-748, September.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
- Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-862, December.
- Ackert, Lucy F. & Church, Bryan K. & Shehata, Mohamed, 1997. "Market behavior in the presence of costly, imperfect information: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 61-74, May.
- Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817. Full references (including those not matched with items on IDEAS)
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