Learning from Unrealized Versus Realized Prices

32 Pages Posted: 11 May 2015 Last revised: 11 Jun 2015

See all articles by Kathleen Ngangoue

Kathleen Ngangoue

German Institute for Economic Research (DIW Berlin)

Georg Weizsacker

Humboldt University Berlin; DIW Berlin

Date Written: June 2015

Abstract

Our market experiment investigates the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. When market participants have to submit their bids conditional on the price, they show a bias by reacting only to their private information and not to the hypothetical value of the price. In a sequential trading mechanism, where the price is known at the bid submission, bids react to price to an extent that is roughly consistent with the benchmark theory.

Keywords: financial market experiment, naive inference, behavioral economics

JEL Classification: D82, D81, C91

Suggested Citation

Ngangoue, Kathleen and Weizsacker, Georg, Learning from Unrealized Versus Realized Prices (June 2015). DIW Berlin Discussion Paper No. 1487. Available at SSRN: https://ssrn.com/abstract=2604733 or http://dx.doi.org/10.2139/ssrn.2604733

Kathleen Ngangoue

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Georg Weizsacker (Contact Author)

Humboldt University Berlin ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

DIW Berlin

Mohrenstr. 58
Berlin
Germany

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