Herding and Contrarian Behavior in Financial Markets - An Internet Experiment

Mathias Drehmann and Jörg Oechssler

No 55, Econometric Society 2004 North American Winter Meetings from Econometric Society

Abstract: We report results of an internet experiment designed to test the theory of informational cascades in financial markets. 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 look at the behavior of various subsamples of our heterogeneous subject pool

Keywords: Herding; informational cascades; contrarian behavior; internet experiment (search for similar items in EconPapers)
JEL-codes: G14 C99 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-exp, nep-fin and nep-pke
Date: Written
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Related works:
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)
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)
Journal Article: Herding and Contrarian Behavior in Financial Markets: An Internet Experiment (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:ecm:nawm04:55

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