A Theoretical Framework for Trading Experiments

12 Pages Posted: 17 Feb 2013

See all articles by Maxence Soumare

Maxence Soumare

Université de Nice Sophia Antipolis - Laboratoire Jean-Alexandre Dieudonné

Jorgen Vitting Andersen

CES, Université Paris 1 Panthéon-Sorbonne

Francis Bouchard

HEC Montreal

Alain Elkaim

HEC Montreal

Dominique Guegan

Université Paris I Panthéon-Sorbonne

Justin Leroux

HEC Montreal - Institute of Applied Economics; CIRANO

Michel Miniconi

Laboratoire Jean-Alexandre Dieudonné

Lars Stentoft

Department of Economics, University of Western Ontario; Center for Interuniversity Research and Analysis on Organization (CIRANO); Aarhus University - CREATES

Date Written: February 16, 2013

Abstract

A general framework is suggested to describe human decision making in a certain class of experiments performed in a trading laboratory. We are in particular interested in discerning between two different moods, or states of the investors, corresponding to investors using fundamental investment strategies, technical analysis investment strategies respectively. Our framework accounts for two opposite situations already encountered in experimental setups: i) the rational expectations case, and ii) the case of pure speculation. We consider new experimental conditions which allow both elements to be present in the decision making process of the traders, thereby creating a dilemma in terms of investment strategy. Our theoretical framework allows us to predict the outcome of this type of trading experiments, depending on such variables as the number of people trading, the liquidity of the market, the amount of information used in technical analysis strategies, as well as the dividends attributed to an asset. We find that it is possible to give a qualitative prediction of trading behavior depending on a ratio that quantifies the fluctuations in the model.

Keywords: decision making, game theory, complex systems theory, technical analysis, rational expectations

Suggested Citation

Soumare, Maxence and Vitting Andersen, Jorgen and Bouchard, Francis and Elkaim, Alain and Guegan, Dominique and Leroux, Justin and Miniconi, Michel and Stentoft, Lars, A Theoretical Framework for Trading Experiments (February 16, 2013). Available at SSRN: https://ssrn.com/abstract=2211188 or http://dx.doi.org/10.2139/ssrn.2211188

Maxence Soumare

Université de Nice Sophia Antipolis - Laboratoire Jean-Alexandre Dieudonné ( email )

Parc Valrose
Nice Cedex 2, 06108
France

Jorgen Vitting Andersen (Contact Author)

CES, Université Paris 1 Panthéon-Sorbonne ( email )

Maison des Sciences Economiques
106-112 Boulevard de l'Hôpital 75647 Paris Cedex
Paris, 75647
France

Francis Bouchard

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Alain Elkaim

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Dominique Guegan

Université Paris I Panthéon-Sorbonne ( email )

106 avenue de lhopital
75634 Paris Cedex 13
Paris, IL
France

Justin Leroux

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

CIRANO ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Michel Miniconi

Laboratoire Jean-Alexandre Dieudonné ( email )

Parc Valrose
Nice Cedex 2, 06108
France

Lars Stentoft

Department of Economics, University of Western Ontario ( email )

London, Ontario N6A 5B8
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Aarhus University - CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

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