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Herding and Contrarianism in a Financial Trading Experiment with Endogenous Timing

  • Park, Andreas

    (University of Toronto)

  • Sgroi, Daniel

    (University of Warwick)

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: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_868.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 868.

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Length: 56 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:868
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  1. Daniel Sgroi, 2000. "The Right Choice at the Right Time: A Herding Experiment in Endogenous Time," Economics Series Working Papers 2000-W15, University of Oxford, Department of Economics.
  2. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521824019, June.
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  14. Andreas Park & Daniel Sgroi, 2008. "When Herding and Contrarianism Foster Market Efficiency: A Financial Trading Experiment," Working Papers tecipa-316, University of Toronto, Department of Economics.
  15. Asen Ivanov & Dan Levin & James Peck, 2008. "Hindsight, Foresight, and Insight: An Experimental Study of a Small-Market Investment Game with Common and Private Values," Working Papers 0801, VCU School of Business, Department of Economics.
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  19. 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.
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