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Trading while sleepy? Circadian mismatch and mispricing in a global experimental asset market

Author

Listed:
  • David L. Dickinson

    (Appalachian State University
    IZA
    ESI)

  • Ananish Chaudhuri

    (University of Auckland
    CESifo)

  • Ryan Greenaway-McGrevy

    (University of Auckland)

Abstract

Traders in global markets operate at different local times-of-day. This implies heterogeneity in circadian timing and likely sleepiness or alertness of those traders operating at less or more optimal times of the day, respectively. This, in turn, may lead to differences in both individual-level trader behavior as well as market level outcomes. We examined these factors by administering single-location and global sessions of an online asset market experiment that regularly produces mispricing and valuation bubbles. Global sessions involved real time trades between subjects in New Zealand and the U.S (i.e., “global” markets) with varied local times of day for each location. Individual traders at suboptimal times of day (or, “circadian mismatched” traders) engaged in riskier trading strategies, such as holding shares (the riskier asset) in later trading rounds and mispricing shares to a greater degree. These strategies resulted in lower earnings for circadian mismatched traders, especially in heterogeneous markets that also included traders at more optimal times-of-day. These differences were also reflected in market level outcomes. Markets with higher circadian mismatch heterogeneity across traders were more likely to exhibit longer lasting asset bubbles and greater share turnover volume. Overall, our results draw attention to a unique, but underappreciated, factor present across traders in global market environments, namely, differences in sleepiness across traders. Thus, this study hopes to highlight the role of circadian mismatch in attempting to understand trader behavior and, ultimately, market volatility.

Suggested Citation

  • David L. Dickinson & Ananish Chaudhuri & Ryan Greenaway-McGrevy, 2020. "Trading while sleepy? Circadian mismatch and mispricing in a global experimental asset market," Experimental Economics, Springer;Economic Science Association, vol. 23(2), pages 526-553, June.
  • Handle: RePEc:kap:expeco:v:23:y:2020:i:2:d:10.1007_s10683-019-09623-0
    DOI: 10.1007/s10683-019-09623-0
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    1. Oyebode, B.I. & Nicholls, N., 2021. "Does the timing of assessment matter? Circadian mismatch and reflective processing in university students," International Review of Economics Education, Elsevier, vol. 38(C).

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    More about this item

    Keywords

    Asset markets; Experiments; Bubbles; Sleep; Circadian rhythm;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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