Rational Investor Sentimentina Repeated Stochastic Game with Imperfect Monitoring

Anke Gerbery (), Thorsten Hensz () and Bodo Vogtx ()
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Anke Gerbery: Department of Economics - University of Hamburg
Thorsten Hensz: UZH - Universität Zürich [Zürich] = University of Zurich
Bodo Vogtx: Department of Economics - OVGU - Otto-von-Guericke-Universität Magdeburg = Otto-von-Guericke University [Magdeburg]

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Abstract: We consider a repeated stochastic coordination game with imperfect pub-lic monitoring. In the game any pattern of coordinated play is a perfect Bayesian Nash equilibrium. Moreover, standard equilibrium selection argu-ments either have no bite or they select an equilibrium that is not observed in actual plays of the game. We give experimental evidence for a unique equilibrium selection and explain this very robust finding by equilibrium selection based on behavioral arguments, in particular focal pointanalysis, probability matching and overconfidence. Our results have interesting ap-plicationsinifinance because the observed equilibrium exhibitsmomentum, reversal and excessvolatility. Moreover, the results may help to explain why technical analysisis acommonly observed investment style.

Keywords: Coordination games; Behavioral equilibrium selection; experimental asset markets; behavioral finance; Investor sentiment; Technical analysis (search for similar items in EconPapers)
Date: 2010-11-30
Note: View the original document on HAL open archive server: https://hal.science/hal-00911824
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Published in Journal of Economic Behavior and Organization, 2010, 76 (3), pp.669. ⟨10.1016/j.jebo.2010.08.001⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00911824

DOI: 10.1016/j.jebo.2010.08.001

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