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Experimental stock market dynamics: Excess bids, directional learning, and adaptive style-investing in a call-auction with multiple multi-period lived assets

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  • Selten, Reinhard
  • Neugebauer, Tibor

Abstract

We study the behavioral dynamics of limit orders in simultaneous experimental call-auction markets with multiple multi-period lived securities. As analytical decision variable we use excess bids; the number of submitted bids minus the number of offers. The feedback variable is (excess) return. Our results suggest that excess bids are predictive of qualitative asset returns, and that excess bids are formed in an adaptive way. We conclude that the price trend or reversal is reinforced by rejected excess bids and the fundamental laws of demand and supply instigate a regression to the mean. Our analysis of portfolio adjustment dynamics which is based on learning direction theory shows that adaptive value-style investing and path-dependence explain a significant share of individual behavior.

Suggested Citation

  • Selten, Reinhard & Neugebauer, Tibor, 2019. "Experimental stock market dynamics: Excess bids, directional learning, and adaptive style-investing in a call-auction with multiple multi-period lived assets," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 209-224.
    • Handle: RePEc:eee:jeborg:v:157:y:2019:i:c:p:209-224
    DOI: 10.1016/j.jebo.2018.04.012
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    Cited by:

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    2. Sascha Füllbrunn & Tibor Neugebauer & Andreas Nicklisch, 2020. "Underpricing of initial public offerings in experimental asset markets," Experimental Economics, Springer;Economic Science Association, vol. 23(4), pages 1002-1029, December.
    3. Lunawat, Radhika, 2021. "Learning from trading activity in laboratory security markets with higher-order uncertainty," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).

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    More about this item

    Keywords

    Call market experiment; Market dynamics; Excess bids; Bounded rationality; Adaptation; Style-investing; Learning direction theory;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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