Experimental Stock Market Dynamics: Excess Bids, Directional Learning, and Adaptive Style Investing in a Call-Auction with Multiple Multiperiod Lived Assets

38 Pages Posted: 1 Aug 2019

See all articles by Reinhard Selten

Reinhard Selten

University of Bonn - Economic Science Area; CESifo (Center for Economic Studies and Ifo Institute)

Tibor Neugebauer

Université du Luxembourg - Department of Finance

Date Written: April 29, 2018

Abstract

We study the behavioral dynamics of limit orders in simultaneous experimental call-auction markets with multiple multiperiod lived securities. As analytical decision variable we use excess bids; the number of submitted bids minus the number of offers. The feedback variable is (excess) return. Our results suggest that excess bids are predictive of qualitative asset returns, and that excess bids are formed in an adaptive way. We conclude that the price trend or reversal is reinforced by rejected excess bids and the fundamental laws of demand and supply instigate a regression to the mean. Our analysis of portfolio adjustment dynamics which is based on learning direction theory shows that adaptive value-style investing and path-dependence explain a significant share of individual behavior.

Keywords: call market experiment, market dynamics, excess bids, bounded rationality, adaptation, style-investing, learning direction theory

JEL Classification: C90; D53; G02; G11; G12

Suggested Citation

Selten, Reinhard and Neugebauer, Tibor, Experimental Stock Market Dynamics: Excess Bids, Directional Learning, and Adaptive Style Investing in a Call-Auction with Multiple Multiperiod Lived Assets (April 29, 2018). Journal of Economic Behavior and Organization, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3428243

Reinhard Selten

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
++49-228 73-9190 (Phone)
++49-228 73-9193 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tibor Neugebauer (Contact Author)

Université du Luxembourg - Department of Finance

Campus Kirchberg
6 rue Richard Coudenhove-Kalergi
L-1359 Luxembourg
Luxembourg

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