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Herding and contrarianism in a financial trading experiment with endogenous timing

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Park, Andreas and Sgroi, Daniel (2008) Herding and contrarianism in a financial trading experiment with endogenous timing. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.868).

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Abstract

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.

Item Type:

Working or Discussion Paper (Working Paper)

Subjects:

H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory

Divisions:

Faculty of Social Sciences > Economics

Library of Congress Subject Headings (LCSH):

Information theory in finance, Stock exchanges -- Research, Rational expectations (Economic theory), Endogenous growth (Economics), Stocks -- Prices -- Mathematical models

Series Name:

Warwick economic research papers

Publisher:

University of Warwick, Department of Economics

Place of Publication:

Coventry

Official Date:

1 October 2008

Dates:

Date	Event
1 October 2008	Published

Number:

No.868

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

Funder:

Economic and Social Research Council (Great Britain) (ESRC), Leverhulme Trust (LT), Social Sciences and Humanities Research Council of Canada (SSHRC), Cambridge Endowment for Research in Finance (CERF)

Version or Related Resource:

Park, A. and Sgroi, D. (2008). Herding and contrarianism in a financial trading experiment with endogenous timing. [Toronto] : Economics Department, University of Toronto. (University of Toronto research papers, no.341).

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