Trading Complex Assets

24 Pages Posted: 19 Jul 2010 Last revised: 26 Mar 2023

See all articles by Bruce I. Carlin

Bruce I. Carlin

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

Shimon Kogan

Reichman University - Arison School of Business; University of Pennsylvania - The Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: July 2010

Abstract

We perform an experimental study of complexity to assess its effect on trading behavior, price volatility, liquidity, and trade efficiency. Subjects were asked to deduce the value of a particular asset from information they were given about the composition and price of several portfolios. Following that, subjects traded with each other anonymously in a well-defined, simple bargaining process. Portfolio problems ranged from requiring simple analysis to more complicated computation. Complexity altered subjects' bidding strategies, decreased liquidity, increased price volatility, and decreased trade efficiency. Female subjects were affected more by complexity (e.g., lower trade frequency), although they achieved higher payoffs in the complex treatment. Our analysis suggests that complexity may be a driver of volatility and liquidity in financial markets and provides novel testable empirical predictions.

Suggested Citation

Carlin, Bruce I. and Kogan, Shimon, Trading Complex Assets (July 2010). NBER Working Paper No. w16187, Available at SSRN: https://ssrn.com/abstract=1641564

Bruce I. Carlin (Contact Author)

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

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Shimon Kogan

Reichman University - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
34
Abstract Views
823
PlumX Metrics