Momentum and Overreaction in Experimental Asset Markets

18 Pages Posted: 4 Feb 2005

See all articles by Gunduz Caginalp

Gunduz Caginalp

University of Pittsburgh - Department of Mathematics

David Porter

Chapman University - The George L. Argyros College of Business and Economics

Vernon L. Smith

Chapman University - Economic Science Institute; Chapman University School of Law

Abstract

Price volatility and investor overreactions are commonplace in experimental asset markets. Understanding the price dynamics in these markets is crucial for designing successful new trading institutions. We report on a series of experiments to test the predictions of a new momentum model using a dynamical systems approach. This model is then pitted against several standard models to predict prices, as well as against expert human forecasters. The comparative results suggest that each model has its advantages and regions of best performance. Overall, the best predictive methods are the momentum model and expert human forecasters.

Suggested Citation

Caginalp, Gunduz and Porter, David and Smith, Vernon L., Momentum and Overreaction in Experimental Asset Markets. International Journal of Industrial Organization, Vol. 1, pp. 24-48, 2000, Available at SSRN: https://ssrn.com/abstract=660342

Gunduz Caginalp (Contact Author)

University of Pittsburgh - Department of Mathematics ( email )

507 Thackeray Hall
Pittsburgh, PA 15260
United States
412-624-8339 (Phone)
412-624-8397 (Fax)

David Porter

Chapman University - The George L. Argyros College of Business and Economics ( email )

1 University Drive
Orange, CA
United States
(714) 997-6915 (Phone)
(714) 628-2881 (Fax)

Vernon L. Smith

Chapman University - Economic Science Institute ( email )

1 University Drive
Orange, CA 92866
United States
714-628-2830 (Phone)

Chapman University School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States

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