%L discovery14427
%I ESRC Centre for Economic Learning and Social Evolution
%D 2007
%T Herd behavior in financial markets: a field experiment with financial market professionals
%A M. Cipriani
%A A. Guarino
%X 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 in such a way that herding
should never occur, and one in which the presence of event uncertainty
makes herding possible. In the first treatment, traders seldom herd,
in accordance with both the theory and previous experimental evidence
on student subjects. A proportion of traders, however, engage
in contrarianism, something not accounted for by the theory. In the
second treatment, on the one hand, the proportion of herding decisions
increases, but not as much as the theory would suggest; on the
other hand, contrarianism disappears altogether. In both treatments,
in contrast with what theory predicts, subjects sometimes prefer to
abstain from trading, which affects negatively the process of price discovery.
%C London, UK
%N 272
%S ELSE Working Papers