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Do investors trade too much? A laboratory experiment

João da Gama Batista, Domenico Massaro, Jean-Philippe Bouchaud, Damien Challet () and Cars Hommes ()

Journal of Economic Behavior & Organization, 2017, vol. 140, issue C, 18-34

Abstract: We run an experiment to investigate the emergence of excess and synchronised trading activity leading to market crashes. Although the environment clearly favours a buy-and-hold strategy, we observe that subjects trade too much, which is detrimental to their wealth given the implemented market impact (known to them). We find that preference for risk leads to higher activity rates and that price expectations are fully consistent with subjects’ actions. In particular, trading subjects try to make profits by playing a buy low, sell high strategy. Finally, we do not detect crashes driven by collective panic, but rather a weak but significant synchronisation of buy activity.

Keywords: Experimental asset markets; Trading volumes; Crashes; Expectations; Risk attitude (search for similar items in EconPapers)
JEL-codes: C91 C92 D84 G11 G12 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:140:y:2017:i:c:p:18-34

DOI: 10.1016/j.jebo.2017.05.013

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