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Trial Title
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Before
What factors affect trading performance?
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After
No Bubbles in the City. An Experiment with Professional Traders
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Abstract
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Before
This study explores the factors that contribute to earnings in financial markets. Different populations are studied and compared. Undergraduate subjects are used as the control for a portion of the analysis.
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After
We examine how professional financial traders behave in two classic laboratory market environments. First, traders trade an asset with a declining fundamental value (Smith, Suchanek, & Williams, 1988) while receiving private information about the asset's value. Second, traders make choices in a ``guessing game'' with peers (Nagel, 1995) as well as within our novel ``individual guessing game'' framework. We also collect data on cognitive factors (IQ and CRT), behavioral factors (risk, confidence, and digit-ratio), and personality traits (e.g. Big 5). This is compared against data from undergraduate students. In accordance with previous studies, undergraduates overprice the asset (a ``bubble'') and, in the guessing game, make choices consistent with different levels of strategic reasoning. In contrast, traders trade at prices that closely reflect the asset's declining fundamental value and make choices that suggest higher levels of strategic reasoning than the levels of the students. Professional traders are also better than undergraduates in aggregating private information through trading activity. In addition, choices from our individual guessing game can decompose a subject's own level of strategic reasoning from their belief about the population's level of reasoning. Our data show that traders anticipate that their opponents will have higher levels of strategic reasoning than do that of students.
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Trial End Date
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September 30, 2019
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November 01, 2019
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Last Published
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Before
April 16, 2019 04:27 AM
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After
October 24, 2019 04:45 AM
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Primary Outcomes (End Points)
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Before
We have two primary outcomes we are interested in. First, do the different populations mis-price the asset at different levels? In this case, undergraduate subjects are used as the control against a different population. Second, based on a battery of tests conducted after the market experiment, which cognitive or non-cognitive trait best predicts performance in the experimental market.
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After
We have two primary outcomes we are interested in. First, do the traders behave differently (better) in the market experiments than do the students? Second, based on a battery of individual-level tests conducted after the market experiments, which cognitive or non-cognitive trait best predicts performance in the experimental market.
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Experimental Design (Public)
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Before
We are studying behavior in a market experiment across different groups. Undergraduate subjects are used as the control for a portion of the analysis.
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After
We are studying behavior in market experiments across different groups: Professional financial traders and undergraduate subjects. We are also studying for differences in individual-level behavior across groups (e.g. IQ).
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Planned Number of Clusters
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Before
We plan to have approximately 50 subjects in each of the two groups (for 100 total subjects).
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After
We have 56 subjects in each of the two groups (for 112 total subjects).
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