Trading Complex Assets
Bruce I. Carlin
University of California, Los Angeles (UCLA) - Anderson School of Management
Interdisciplinary Center (IDC) Herzliyah - Arison School of Business; University of Texas at Austin - Red McCombs School of Business
University of Texas-Austin
April 22, 2012
Journal of Finance, Forthcoming
We perform an experimental study to assess the effect of complexity on asset trading. We find that higher complexity leads to increased price volatility, lower liquidity, and decreased trade efficiency especially when repeated bargaining takes place. However, the channel through which complexity acts is not simply due to the added noise induced by estimation error. Rather, complexity alters the bidding strategies used by traders, making them more reticent to trade, even when we control for estimation error across treatments. As such, it appears that adverse selection plays an important role in explaining the trading abnormalities caused by complexity.
Number of Pages in PDF File: 69
Date posted: November 19, 2011 ; Last revised: April 30, 2012
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.453 seconds