Template-Type: ReDIF-Paper 1.0
Title: Herding and Contrarian Behavior in Financial Markets - An Internet Experiment
Author-Name: Mathias Drehmann
Author-Name: Jörg Oechssler
Author-Name: Andreas Roider
Author-Email: 
Classification-JEL: C99, D8, G12, G14
Keywords: herd behavior, informational cascades, contrarian investors, market efficiency, internet experiment
Abstract: We report results of an internet experiment designed to test the theory of informational 
	cascades in financial markets (Avery and Zemsky, AER, 1998). More than 6000 subjects, 
	including a subsample of 267 consultants from an international consulting firm, participated 
	in the experiment. As predicted by theory, we find that the presence of a flexible market 
	price prevents herding. However, the presence of contrarian behavior, which can (partly) be 
	rationalized via error models, distorts prices, and even after 20 decisions convergence to 
	the fundamental value is rare. We also study the effects of transaction costs and the 
	expectations of subjects with respect to future prices. Finally, we report some interesting 
	differences with respect to subjects' fields of study.
Note: 
Length: 56
Creation-Date: 2002-10	
Revision-Date: 2003-04
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse25_2002.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse25_2002