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Full-Text Articles in Econometrics
Forecasting Skills In Experimental Markets: Illusion Or Reality?, Brice Corgnet, Cary Deck, Mark Desantis, David Porter
Forecasting Skills In Experimental Markets: Illusion Or Reality?, Brice Corgnet, Cary Deck, Mark Desantis, David Porter
ESI Working Papers
Using experimental asset markets, we study the situation of a financial analyst who is trying to infer the fundamental value of an asset by observing the market’s history. We find that such capacity requires both standard cognitive skills (IQ) as well as social and emotional skills. However, forecasters with high emotional skills tend to perform worse when market mispricing is high as they tend to give too much emphasis to the noisy signals from market data. By contrast, forecasters with high social skills perform especially well in markets with high levels of mispricing in which their skills could help them …
Information Aggregation And The Cognitive Make-Up Of Traders, Brice Corgnet, Mark Desantis, David Porter
Information Aggregation And The Cognitive Make-Up Of Traders, Brice Corgnet, Mark Desantis, David Porter
ESI Working Papers
We assess the effect of the cognitive make-up of traders on the informational efficiency of markets. We put forth that cognitive skills, such as cognitive reflection, are crucial for ensuring the informational efficiency of markets because they endow traders with the ability to infer others’ information from prices. Using laboratory experiments, we show that information aggregation is significantly enhanced when (i) all traders possess high levels of cognitive sophistication and (ii) this high level of cognitive sophistication is common information for all traders. Our findings shed light on the cognitive and informational constraints underlying the efficient market hypothesis.