Exploring the Nature of 'Trader Intuition'

102 Pages Posted: 2 Jan 2010 Last revised: 17 Jan 2010

Antoine Jean Bruguier

California Institute of Technology

Steven R. Quartz

California Institute of Technology

Peter Bossaerts

Brain, Mind and Markets Laboratory

Date Written: January 1, 2010

Abstract

Experimental evidence has consistently confirmed the ability of uninformed traders, even novices, to infer information from the trading process. We hypothesized that ToM was involved after contrasting brain activation in subjects watching markets with and without insiders. ToM refers to the innate human capacity to discern malicious or benevolent intent. We find that skill in predicting price changes in markets with insiders correlates with scores on two ToM tests. We document GARCH-like persistence in transaction price changes that may help with reading markets when there are insiders.

Suggested Citation

Bruguier, Antoine Jean and Quartz, Steven R. and Bossaerts, Peter, Exploring the Nature of 'Trader Intuition' (January 1, 2010). Journal of Finance, Forthcoming; Swiss Finance Institute Research Paper No. 10-02. Available at SSRN: https://ssrn.com/abstract=1530263

Antoine Jean Bruguier (Contact Author)

California Institute of Technology ( email )

Pasadena, CA 91125
United States

Steven R. Quartz

California Institute of Technology ( email )

Pasadena, CA 91125
United States

Peter L. Bossaerts

Brain, Mind and Markets Laboratory ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

HOME PAGE: http://bmmlab.org

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