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Noise trading in a laboratory financial market: a maximum likelihood approach

Cipriani, M.; Guarino, A.; (2004) Noise trading in a laboratory financial market: a maximum likelihood approach. (ELSE Working Papers 111). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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Abstract

We study the extent to which, in a laboratory financial market, noise trading can stem from subjects' irrationality. We estimate a structural model of sequential trading by using experimental data. In the experiment, subjects receive private information on the value of an asset and trade it in sequence with a market maker. We find that, in the laboratory, the noise due to the irrational use of private information accounts for 35 percent of the decisions. When subjects act as noise traders, they abstain from trading 67 percent of the time. When they trade, the probability that they buy is significantly higher than the probability that they sell.

Type: Working / discussion paper
Title: Noise trading in a laboratory financial market: a maximum likelihood approach
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php
Language: English
Additional information: Please also see http://eprints.ucl.ac.uk/12705/ for a related item
Keywords: JEL classification: C92, D8, G14
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14572
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