How Do Experienced Traders Respond to Inflows of Inexperienced Traders? An Experimental Analysis
38 Pages Posted: 19 Dec 2013
Date Written: December 18, 2013
We conducted asset market experiments where one experienced subject (EH) interacts with five inexperienced subjects (1EH5H) to investigate how EHs change their price forecasts and trading strategies when faced with strategic uncertainty caused by inflows of inexperienced subjects. Only half the EHs initially forecasted prices deviating more from the fundamental values in 1EH5H than in the final round of the experiment in which they had previously participated. Furthermore, the majority of our EHs did not change their trading behaviour. Many EHs act as price stabilisers when the inflow of inexperienced subjects is not associated with other changes in market conditions.
Keywords: Strategic uncertainty, Experience, Heterogeneity, Experiment, Asset markets
JEL Classification: C90, D84
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