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Financial Markets where Traders Neglect the Informational Content of Prices
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docs.google.com/spreadsheets/d/1kB_yut_BGasxufESRo7Xg3klJRwfec7Zv77Wg1h5pbs/edit#gid=0
Abstract:
We present a model of a financial market where some traders are “cursed” when investing in a risky asset, failing to fully appreciate what prices convey about others’ private information. Markets comprising cursed traders generate more trade than those comprising rationals; mixed markets can generate even more trade because rationals exploit return predictability caused by cursed. Per-trader volume in cursed markets increases with market size; volume may instead disappear when traders infer others’ information from prices but dismiss it as noisier than their own. Public-information revelation raises rational and “dismissive” volume, but lowers cursed volume given moderate non-informational trading motives.
Date:
10 October 2017, 16:30
Venue:
Nuffield College, New Road OX1 1NF
Venue Details:
Conference Room
Speaker:
Erik Eyster (London School of Economics)
Organising department:
Department of Economics
Part of:
Learning, Games and Network Seminar
Booking required?:
Not required
Audience:
Members of the University only
Editors:
Erin Saunders,
Anne Pouliquen
