Bubbles in hybrid markets — How expectations about algorithmic trading affect human trading
Mike Farjam and Oliver Kirchkamp
Bubbles are omnipresent in lab experiments with asset markets. Most of these experiments were conducted in environments with only human traders. Today markets are substantially determined by algorithmic traders. Here we use a laboratory experiment to measure changes of human trading behaviour if these humans expect algorithmic traders. We want to separate the direct from the indirect effect of algorithmic traders and we want to be independent of a specific algorithm. In our experiment we manipulate only the expectations of human traders. We find clearly smaller bubbles if human traders expect algorithmic traders to be present.JEL: C92, G02
Keywords: Bubbles, Expectations, Experiment, Algorithmic Traders.
- Here is the most recent version of the working paper as of 2 October 2017.
- Data, R files, and z-Tree programs.
- Subjects got instructions in form of a video tutorial. Here is the video with English subtitles (11 minutes). Subjects also had a printed table with the fundamental value of an asset in each round at their disposal.
- On 20 November 2017, the paper has been accepted for publication at the Journal of Economic Behavior & Organization, Vol. 146, pp. 248-269.