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Herding and Contrarian Behavior in Financial Markets - An Internet Experiment Author info | Abstract | Publisher info | Download info | Related research | Statistics Mathias Drehmann (University of Bonn)
Joerg Oechssler (University of Bonn)
Andreas Roider (University of Bonn)
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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.
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Paper provided by EconWPA in its series Finance with number
0210005.
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Date of creation: 17 Oct 2002Date of revision:
Handle: RePEc:wpa:wuwpfi:0210005Note: Type of Document -Contact details of provider: Web page: http://129.3.20.41
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Keywords: herd behavior ; informational cascades ; contrarian investors ; market efficiency ; internet experiment ; Other versions of this item:
Article Paper Mathias Drehmann & Joerg Oechssler & Andreas Roider, 2003.
"Herding and Contrarian Behavior in Financial Markets: An Internet Experiment ,"
University of California at Santa Barbara, Economics Working Paper Series
18-03, Department of Economics, UC Santa Barbara.
[Downloadable!] Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2004.
"Herding and Contrarian Behavior in Financial Markets - An Internet Experiment ,"
Discussion Papers
7, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
[Downloadable!] Mathias Drehmann & Joerg Oechssler & Andreas Roider, 2002.
"Herding and Contrarian Behavior in Financial Markets - An Internet Experiment ,"
Experimental
0210001, EconWPA.
[Downloadable!] Roider, Andreas & Mathias Drehmann & Jorg Oechssler, 2003.
"Herding and Contrarian Behavior in Financial Markets - An Internet Experiment ,"
Royal Economic Society Annual Conference 2003
177, Royal Economic Society.
[Downloadable!] Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2002.
"Herding and Contrarian Behavior in Financial Markets - An Internet Experiment ,"
Bonn Econ Discussion Papers
bgse25_2002, University of Bonn, Germany, revised Apr 2003.
[Downloadable!] Mathias Drehmann & Jörg Oechssler, 2004.
"Herding and Contrarian Behavior in Financial Markets - An Internet Experiment ,"
Econometric Society 2004 North American Winter Meetings
55, Econometric Society.
[Downloadable!] Find related papers by JEL classification: C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other D8 - Microeconomics - - Information, Knowledge, and Uncertainty G12 - Financial Economics - - General Financial Markets - - - Asset Pricing G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
This paper has been announced in the following NEP Reports :
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