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Herding and Contrarianism in a Financial Trading Experiment with Endogenous Timing

Listed author(s):
  • Andreas Park
  • Daniel Sgroi

We undertook the first market trading experiments that allowed heterogeneously informed subjects to trade in endogenous time, collecting over 2000 observed trades. Subjects’ decisions were generally in line with the predictions of exogenous-time financial herding theory when that theory is adjusted to allow rational informational herding and contrarianism. While herding and contrarianism did not arise as frequently as predicted by theory, such behavior occurs in a significantly more pronounced manner than in comparable studies with exogenous timing. Types with extreme information traded earliest. Of those with more moderate information, those with signals conducive to contrarianism traded earlier than those with information conducive to herding.

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File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-341.pdf
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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-341.

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Length: 56 pages
Date of creation: 15 Oct 2008
Handle: RePEc:tor:tecipa:tecipa-341
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  19. Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets; A Review," IMF Working Papers 00/48, International Monetary Fund.
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