Herd Behavior in Financial Markets : An Experiment with Financial Market Professionals

Author/Editor:

Marco Cipriani ; Antonio Guarino

Publication Date:

June 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We study herd behavior in a laboratory financial market with financial market professionals. We compare two treatments, one in which the price adjusts to the order flow so that herding should never occur, and one in which event uncertainty makes herding possible. In the first treatment, subjects herd seldom, in accordance with both the theory and previous experimental evidence on student subjects. A proportion of subjects, however, engage in contrarianism, something not accounted for by the theory. In the second treatment, the proportion of herding decisions increases, but not as much as theory suggests; moreover, contrarianism disappears altogether.

Series:

Working Paper No. 08/141

Subject:

English

Publication Date:

June 1, 2008

ISBN/ISSN:

9781451869996/1018-5941

Stock No:

WPIEA2008141

Format:

Paper

Pages:

28

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