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.

Do investors trade too much? A laboratory experiment / J. da Gama Batista, D. Massaro, J.P. Bouchaud, D. Challet, C. Hommes. - In: JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION. - ISSN 0167-2681. - 140(2017 Aug), pp. 18-34. [10.1016/j.jebo.2017.05.013]

Do investors trade too much? A laboratory experiment

D. Massaro
Secondo
;
2017

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.
Crashes; Expectations; Experimental asset markets; Risk attitude; Trading volumes; Economics and Econometrics; Organizational Behavior and Human Resource Management
Settore SECS-P/01 - Economia Politica
Settore SECS-P/02 - Politica Economica
http://www.elsevier/nl/locate/jebo
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/820806
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