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| Author: | Cipriani, M. Guarino, A. |
| Title: | Herd behavior in financial markets: an experiment with financial market professionals |
| Journal: | Journal of the European Economic Association
2009 : MAR, VOL. 7:1, p. 206-233 |
| Index terms: | experiment design financial markets trading |
| Freeterms: | professionals herding behaviour |
| Language: | eng |
| Abstract: | Using experimental design as a strategy-like method, this paper explores herd behaviour (hereafter as: h-beh.) in a laboratory financial market (here as: f-m.) with f-m. professionals for detecting h-beh. directly by observing subjects' decisions for all realizations of their private signal. Two treatments are compared: i) one in which the price adjusts to the order flow in such a way that h-beh. should never occur, and ii) one in which the presence of event uncertainty makes h-beh. possible. In the i), subjects seldom herd, in accordance with both the theory and previous experimental evidence on student subjects etc. In the ii), the proportion of herding decisions increases, but not as much as the theory would suggest. In both treatments, in contrast with the theory predictions, subjects sometimes prefer to refrain from trading, which affects negatively on the process of price discovery. |
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