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

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  • David L. Dickinson
  • Ananish Chaudhuri
  • Ryan Greenaway-McGrevy

Abstract

Traders in global markets operate at different local times-of-day. Suboptimal times-of-day may produce sleepiness due to daily variations in sleep/wake patterns and possibly also increased accumulation of hours awake. Global asset markets imply significantly increased heterogeneity in circadian timing, and likely sleepiness, of trader decisions compared to localized markets. We examine these factors by administering single-location and global sessions of an online asset market experiment that regularly produces valuation bubble and crash events. Global sessions involved real time trades between subjects in two locations 16 time zones apart (i.e., “global” markets) and at varied local times of day across sessions. We find asset market bubbles occur in all sessions, but global markets had significantly more extreme and longer duration valuation bubbles. Additionally, subjects at the most suboptimal times-of-day held significantly more asset shares in their portfolios in late trading rounds compared to other subjects—a risky strategy with overvalued shares. Overall, our results highlight a unique but underappreciated factor present across traders in global market environments. They also point to the importance of a relatively common cognitive state (i.e., suboptimal time-of-day) in attempting to understand trader behavior and, ultimately, market outcomes. Key Words: Asset Markets, Experiments, Bubbles, Sleep, Circadian rhythm

Suggested Citation

  • David L. Dickinson & Ananish Chaudhuri & Ryan Greenaway-McGrevy, 2017. "Trading while sleepy? Circadian mismatch and excess volatility in a global experimental asset market," Working Papers 17-06, Department of Economics, Appalachian State University.
    • Handle: RePEc:apl:wpaper:17-06
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    References listed on IDEAS

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    Cited by:

    1. Coppock, Lee A. & Harper, Daniel Q. & Holt, Charles A., 2021. "Capital constraints and asset bubbles: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 75-88.
    2. Martin G Kocher & Konstantin E Lucks & David Schindler, 2019. "Unleashing Animal Spirits: Self-Control and Overpricing in Experimental Asset Markets," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2149-2178.
    3. Kocher, Martin G. & Lucks, Konstantin E. & Schindler, David, 2016. "Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets," Discussion Papers in Economics 27572, University of Munich, Department of Economics.
    4. John R. Nofsinger & Corey A. Shank, 2019. "DEEP sleep: The impact of sleep on financial risk taking," Review of Financial Economics, John Wiley & Sons, vol. 37(1), pages 92-105, January.
    5. Butler, David & Cheung, Stephen L., 2018. "Mind, Body, Bubble! Psychological and Biophysical Dimensions of Behavior in Experimental Asset Markets," IZA Discussion Papers 11563, Institute of Labor Economics (IZA).
    6. David L. Dickinson & Andrew R. Smith & Robert McClelland, 2019. "An Examination of Circadian Impacts on Judgments," Working Papers 19-11, Department of Economics, Appalachian State University.

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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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