A Robust Measure of Investor Contrarian Behaviour

Challet, Damien; Lachapelle, David Morton de

doi:10.1007/978-88-470-2553-0_7

Cited by 10 publications

(8 citation statements)

References 15 publications

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“…We thus hypothesize some relationship between predicted returns and past returns. This is in line with the best established fact about real investors, which is the contrarian nature of their trades: their net investment over a given period is anti-correlated with past price returns (Jackson, 2003;Kaniel et al, 2008;Grinblatt and Keloharju, 2000;Challet, 2013). In addition, previous experiments (Hommes et al, 2005) have demonstrated that four simple classes of linear predictors using past returns are usually enough to reproduce the observed price dynamics.…”

Section: Tablesupporting

confidence: 83%

Do investors trade too much? A laboratory experiment

Batista

Massaro

Bouchaud

et al. 2017

Journal of Economic Behavior & Organization

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We run an experiment to investigate the emergence of excess and synchronised trading activity leading to market crashes. Although the environment clearly favours a buy-andhold strategy, we observe that subjects trade too much, which is detrimental to their wealth given the implemented market impact (known to them). We find that preference for risk leads to higher activity rates and that price expectations are fully consistent with subjects' actions. In particular, trading subjects try to make profits by playing a buy low, sell high strategy. Finally, we do not detect crashes driven by collective panic, but rather a weak but significant synchronisation of buy activity.

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Section: Tablesupporting

confidence: 83%

Do investors trade too much? A laboratory experiment

Batista

Massaro

Bouchaud

et al. 2017

Journal of Economic Behavior & Organization

Self Cite

View full text Add to dashboard Cite

show abstract

“…We thus hypothesize some relationship between predicted returns and past returns. This is in line with the best established fact about real investors, which is the contrarian nature of their trades: their net investment over a given period is anti-correlated with past price returns (Jackson, 2003;Kaniel et al, 2008;Grinblatt and Keloharju, 2000;Challet and de Lachapelle, 2013). In addition, previous experiments (Hommes et al, 2005) have demonstrated that four simple classes of linear predictors using past returns are usually enough to reproduce the observed price dynamics.…”

Section: Price Forecasts and Trading Behavioursupporting

confidence: 83%

Do Investors Trade Too Much? A Laboratory Experiment

et al. 2015

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We run experimental asset markets to investigate the emergence of excess trading and the occurrence of synchronised trading activity leading to crashes in the artificial markets. The market environment favours early investment in the risky asset and no posterior trading, i.e. a buy-and-hold strategy with a most probable return of over 600%. We observe that subjects trade too much, and due to the market impact that we explicitly implement, this is detrimental to their wealth. The asset market experiment was followed by risk aversion measurement. We find that preference for risk systematically leads to higher activity rates (and lower final wealth). We also measure subjects' expectations of future prices and find that their actions are fully consistent with their expectations. In particular, trading subjects try to beat the market and make profits by playing a buy low, sell high strategy. Finally, we have not detected any major market crash driven by collective panic modes, but rather a weaker but significant tendency of traders to synchronise their entry and exit points in the market.JEL codes: C91, C92, D84, G11, G12.

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“…Greenwood and Shleifer [2013]), yet the analysis of the individual investors' trading flow at a given frequency (i.e. daily, weekly, monthly) invariably point out that their actual trading is dominantly contrarian as it is anti-correlated with previous price returns, while institutional trade flow is mostly uncorrelated with recent price changes on average (Grinblatt and Keloharju [2000], Jackson [2004], Dorn et al [2008], Lillo et al [2008], Challet and de Lachapelle [2013]), . In addition, the style of trading of a given investor only rarely changes (Lillo et al [2008]).…”

Section: Trend Follower Vs Contrarianmentioning

confidence: 99%

Why Have Asset Price Properties Changed so Little in 200 Years

Bouchaud

Challet

2017

Econophysics and Sociophysics: Recent Progress and Future Directions

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We first review empirical evidence that asset prices have had episodes of large fluctuations and been inefficient for at least 200 years. We briefly review recent theoretical results as well as the neurological basis of trend following and finally argue that these asset price properties can be attributed to two fundamental mechanisms that have not changed for many centuries: an innate preference for trend following and the collective tendency to exploit as much as possible detectable price arbitrage, which leads to destabilizing feedback loops.

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A Robust Measure of Investor Contrarian Behaviour

Cited by 10 publications

References 15 publications

Do investors trade too much? A laboratory experiment

Do investors trade too much? A laboratory experiment

Do Investors Trade Too Much? A Laboratory Experiment

Why Have Asset Price Properties Changed so Little in 200 Years

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