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Herding and Contrarianism in a Financial Trading Experiment with Endogenous Timing

Listed author(s):
  • 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
Handle: RePEc:wrk:warwec:868
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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