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Trading Complex Assets

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management

Shimon Kogan

University of Texas at Austin

Richard Lowery

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

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Date posted: November 19, 2011 ; Last revised: April 30, 2012

Suggested Citation

Carlin, Bruce I. and Kogan, Shimon and Lowery, Richard, Trading Complex Assets (April 22, 2012). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1961671 or http://dx.doi.org/10.2139/ssrn.1961671

Contact Information

Bruce I. Carlin
University of California, Los Angeles (UCLA) - Anderson School of Management ( email )
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
Shimon Kogan
University of Texas at Austin ( email )
Austin, TX 78712
United States
512-232-6839 (Phone)
Richard Lowery (Contact Author)
University of Texas-Austin ( email )
Red McCombs School of Business
Austin, TX 78712
United States
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