When index dissemination goes wrong: How fast can traders add and multiply?

Jayanth Varma

Working Papers from eSocialSciences

Abstract: This paper studies an episode of dissemination of wrong stock index values in real time due to a software bug in the Indian Nifty index futures market on the morning of January 18, 2006. The episode provides an opportunity to test various models of cognitive biases and bounded rationality highlighted in behavioural finance. The paper provides strong evidence against cognitive biases like “anchoring and adjustment†(Tversky and Kahneman, 1974) that one might expect under such situations even though the cognitive task involved is quite simple. The futures market tracked the true Nifty index which it could not see while completely ignoring the wrong Nifty index that it could see. However, the paper demonstrates that market efficiency failed in more subtle ways. There is evidence of a partial breakdown of price discovery in the futures markets and a weakening of the bonds linking futures and cash markets. [W.P. No. 2010-08-04]

Keywords: stock index; software; finance; Tversky and Kahneman; discovery; markets (search for similar items in EconPapers)
Date: 2010-12
Note: Institutional Papers
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.esocialsciences.org/Download/repecDownl ... &AId=3249&fref=repec

Related works:
Working Paper: When index dissemination goes wrong: How fast can traders add and multiply? (2010)
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: https://EconPapers.repec.org/RePEc:ess:wpaper:id:3249

Access Statistics for this paper

More papers in Working Papers from eSocialSciences
Bibliographic data for series maintained by Padma Prakash ().