Herding with leading traders: Evidence from a laboratory social trading platform

Chmura, Thorsten, Le, Hang and Nguyen, Kim (2022) Herding with leading traders: Evidence from a laboratory social trading platform. Journal of Economic Behavior and Organization, 203 . pp. 93-106. ISSN 1672681

Full content URL: https://doi.org/10.1016/j.jebo.2022.08.035

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Herding with leading traders: Evidence from a laboratory social trading platform
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Item Type:Article
Item Status:Live Archive

Abstract

We provide novel evidence about herd behavior and its impact on asset price bubbles in an experimental financial market. We find that traders imitate quotes of those with the highest wealth increases as ranked on the leader-boards, despite that no traders possess private value-related information and that wealth increases are not due to trading skills. Most remarkably, we find that herd behavior does not produce more price bubbles and the awareness of information asymmetry leads to fewer bubbles as risk-averse traders become more cautious and do not quote prices too far from the fundamental value. We also find that participants with financial training have a lower herding tendency and markets with these participants exhibit less mispricing.

Keywords:Herd behavior, Asset market, Information asymmetry, Bubbles, Leader-board, Financial training
Subjects:N Business and Administrative studies > N300 Finance
N Business and Administrative studies > N321 Investment
L Social studies > L111 Financial Economics
Divisions:Lincoln International Business School
ID Code:50644
Deposited On:14 Sep 2022 09:32

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