Bubbles in Hybrid Markets - How Expectations About Algorithmic Trading Affect Human Trading

30 Pages Posted: 22 Dec 2015

See all articles by Mike Farjam

Mike Farjam

University of Jena

Oliver Kirchkamp

University of Jena - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 2015

Abstract

Bubbles are omnipresent in lab experiments with asset markets. Most of these experiments were conducted in environments with only human traders. Today markets are substantially determined by algorithmic traders. Here we use a laboratory experiment to measure changes of human trading behavior if these humans expect algorithmic traders. To disentangle the direct effect of algorithmic traders we use a design where we manipulate only the expectations of human traders. We find clearly smaller bubbles if human traders expect algorithmic traders to be present.

Keywords: bubbles, expectations, experiment, algorithmic traders

JEL Classification: C920, G020

Suggested Citation

Farjam, Mike and Kirchkamp, Oliver, Bubbles in Hybrid Markets - How Expectations About Algorithmic Trading Affect Human Trading (November 2015). CESifo Working Paper Series No. 5631. Available at SSRN: https://ssrn.com/abstract=2706506

Mike Farjam

University of Jena ( email )

Furstengraben 1
Jena, Thuringa 07743
Germany

Oliver Kirchkamp (Contact Author)

University of Jena - Economics Department ( email )

Carl-Zeiss-Str. 3
Jena, 07737
Germany

HOME PAGE: http://www.kirchkamp.de/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.kirchkamp.de/

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