Financial Market in the Laboratory

Experimental from University Library of Munich, Germany

Abstract: This paper investigates experimentally a market inspired by two separate strands of economic literature. The first strand is that of herd behaviour in non-market situations and the second that of the aggregation of private information in markets. The first suggests that socially undesirable herd behaviour may result when information is private; the second suggests that in a market context the private information may be aggregated efficiently through the price mechanism. The latter literature therefore suggests that socially undesirable behaviour may be eliminated through the market mechanism. We tested this hypothesis experimentally, in a very simple extension of a herd model into a market context, and found that many of the stylised facts of financial markets (i.e. fat tails of the distribution of returns and autoregressive dependence in volatility) can be reproduced in our experimental market.

Keywords: herd behaviour; fat tail volatility clustering. (search for similar items in EconPapers)
JEL-codes: C9 (search for similar items in EconPapers)
Date: 2004-01-13
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-fin and nep-fmk
Note: Type of Document - pdf; prepared on WinXP
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https://econwpa.ub.uni-muenchen.de/econ-wp/exp/papers/0401/0401002.pdf (application/pdf)

Related works:
Working Paper: Financial Market in the Laboratory (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpex:0401002

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