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Financial Market in the Laboratory

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  • Andrea Morone

    (University of Bari)

Abstract

This paper investigates experimentally a market inspired by two separate strands of economic literature. The first strand is that of herd behaviour in non-market situations and the second that of the aggregation of private information in markets. The first suggests that socially undesirable herd behaviour may result when information is private; the second suggests that in a market context the private information may be aggregated efficiently through the price mechanism. The latter literature therefore suggests that socially undesirable behaviour may be eliminated through the market mechanism. We tested this hypothesis experimentally, in a very simple extension of a herd model into a market context, and found that many of the stylised facts of financial markets (i.e. fat tails of the distribution of returns and autoregressive dependence in volatility) can be reproduced in our experimental market.

Suggested Citation

  • Andrea Morone, 2004. "Financial Market in the Laboratory," Experimental 0401002, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpex:0401002
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    References listed on IDEAS

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    Cited by:

    1. Fiore, Annamaria & Morone, Andrea, 2008. "A Simple Note on Informational Cascades," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-21.
    2. Annamaria Fiore & Andrea Morone, 2005. "Is playing alone in the darkness sufficient to prevent informational cascades?," Experimental 0503002, University Library of Munich, Germany.
    3. Andrea Morone & Eleni Samanidou, 2008. "A simple note on herd behaviour," Journal of Evolutionary Economics, Springer, vol. 18(5), pages 639-646, October.
      • Andrea Morone & Eleni Samanidou, 2007. "A simple note on Herd Behaviour," SERIES 0013, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Feb 2007.

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    More about this item

    Keywords

    herd behaviour; fat tail volatility clustering.;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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