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  4. December 2005
  5. Herding and Contrarian Behavior in Financial Markets: An Internet Experiment

òòò½Íø Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Herding and Contrarian Behavior in Financial Markets: An Internet Experiment

  • Mathias Drehmann
  • Jörg Oechssler
  • Andreas Roider
òòò½Íø Review
vol. 95, no. 5, December 2005
(pp. 1403–1426)
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Abstract

We report results of an Internet experiment designed to test the theory of informational cascades in financial markets (Christopher Avery and Peter Zemsky, 1998). More than 6,400 subjects, including a subsample of 267 consultants from an international consulting firm, participated in the experiment. We find that the presence of a flexible market price prevents herding. The presence of contrarian behavior distorts prices, however, and even after 20 decisions, convergence to the fundamental value is rare. We also report some interesting differences with respect to subjects' fields of study. Reassuringly, the behavior of the consultants turns out to be not significantly different from that of the remaining subjects.

Citation

Drehmann, Mathias, Jörg Oechssler, and Andreas Roider. 2005. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment." òòò½Íø Review 95 (5): 1403–1426. DOI: 10.1257/000282805775014317

Additional Materials

JEL Classification

  • D83 Search; Learning; Information and Knowledge; Communication; Belief
  • G10 General Financial Markets: General (includes Measurement and Data)