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Heterogeneity of Beliefs and Trade in Experimental Asset Markets

Published online by Cambridge University Press:  18 December 2018

Tim A. Carlé ,
Yaron Lahav ,
Tibor Neugebauer  and
Charles N. Noussair
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Abstract

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We investigate the relationship between traders’ expectations and market outcomes with experimental asset market data. The data show that those who have high price expectations buy more frequently and submit higher bids, and those who hold low price expectations sell more frequently and submit lower bids. Traders who have more accurate expectations achieve greater earnings. Simulations using only belief data reproduce the pricing patterns observed in the market well, indicating that the heterogeneity of expectations is a key to explaining market activity.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 1 , February 2019 , pp. 215 - 245
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

Footnotes

1

We gratefully acknowledge the comments of participants at the 2015 Experimental Finance Conference, the 2015 International Meeting on Experimental and Behavioral Sciences, the 2015 Thurgau Experimental Economics Meeting on Formation and Elicitation of Beliefs, and the 2017 Economic Science Association Meetings. We thank Iván Barreda-Tarrazona, Andreas Chouliaras, Sascha Füllbrunn, Nikolaos Georgantzis, Harry Grammatikos, Jarrad Harford (the editor), Ernan Haruvy, Cars Hommes, Julien Penasse, Marc-Oliver Rieger, and Jang Schiltz for their comments, which helped to improve the paper. The scientific research presented in this publication was financially supported by the National Research Fund of Luxembourg (F2R-368 LSF-PMA-13SYSB). Part of this paper was written while Neugebauer was at the University Jaume I, Castellon, Spain.

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