Herding and Contrarian Behavior in Financial Markets: An Internet Experiment

Mathias Drehmann, Jörg Oechssler and Andreas Roider ()
Additional contact information
Mathias Drehmann: Bank of England

No 18-03, University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: We report results of an internet experiment designed to test the theory of informational cascades in financial markets (Avery and Zemsky, AER, 1998). More than 6000 subjects, including a subsample of 267 consultants from an international consulting firm, participated in the experiment. As predicted by theory, we find that the presence of a flexible market price prevents herding. However, the presence of contrarian behavior, which can (partly) be rationalized via error models, distorts prices, and even after 20 decisions convergence to the fundamental value is rare. We also study the effects of transaction costs and the expectations of subjects with respect to future prices. Finally, we report some interesting differences with respect to subjects' fields of study.

Keywords: informational cascades; herding; contrarians; experiment; internet (search for similar items in EconPapers)
Date: 2003-04-01
Note: oai:cdlib1:
View list of references

Downloads: (external link)
http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1179&context=ucsbecon (application/pdf)

Related works:
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2004)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2002)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2003)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2002)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2003)
Working Paper: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment (2004)
Journal Article: Herding and Contrarian Behavior in Financial Markets: An Internet Experiment (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cdl:ucsbec:18-03

Access Statistics for this paper

More papers in University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().