Online Appendix A: Individual Market Results 1

Transcription

1 Online Appendix A: Individual Market Results 1 Table A1 Individual market results for mispricing (RAD), overpricing (RD), average bidask-spread (SPREAD), share turnover (ST), and standard deviation of log returns (VOLA) in T1, T3 POS, and T4 NEG. Treatment Market RAD RD SPREAD ST VOLA T % 16.7% 16.2% % % 44.4% 15.9% % % 54.5% 36.0% % 4 8.5% 1.2% 8.0% % % 62.9% 13.4% % % 59.4% 10.3% % mean 43.2% 39.9% 16.6% % T3 POS % 42.5% 44.3% % % 1.2% 18.2% % 3 3.3% 2.3% 9.4% % % 43.3% 14.1% % % 16.3% 27.5% % % 5.8% 27.4% % 7 8.0% 5.5% 14.5% % 8 2.4% 1.4% 7.2% % % 57.7% 51.5% % % 44.0% 15.5% % mean 27.0% 19.7% 23.0% % T4 NEG % 22.7% 11.4% % % 34.0% 21.8% % 3 3.7% 3.7% 4.9% % 4 0.9% 0.2% 6.1% % % 10.2% 26.3% % % 8.5% 14.2% % mean 14.7% 7.0% 14.1% % 1 Note that we do not report values for DEV because it is calculated by period and not market. Values for DEV are available from the authors upon request.

2 Table A2 Individual market results for mispricing (RAD), overpricing (RD), average bidask-spread (SPREAD), share turnover (ST), and standard deviation of log returns (VOLA) in T2 FV, T5 FVPOS, and T6 FVNEG. Treatment Market RAD RD SPREAD ST VOLA T2 FV 1 2.8% 1.6% 13.5% % 2 1.7% 0.7% 9.0% % 3 3.1% 3.0% 8.2% % 4 4.9% 3.7% 4.4% % % 78.4% 20.3% % 6 5.7% 1.2% 10.5% % mean 16.1% 11.8% 11.0% % T5 FVPOS % 16.4% 26.8% % 2 5.3% 2.8% 11.8% % % 26.3% 7.1% % % 12.9% 50.2% % 5 4.6% 2.5% 9.3% % 6 8.4% 1.6% 10.6% % mean 13.3% 10.4% 19.3% % T6 FVNEG % 19.4% 18.8% % % 13.6% 8.7% % 3 7.1% 7.1% 11.4% % 4 7.4% 2.5% 19.9% % 5 4.8% 1.3% 6.1% % 6 2.7% 0.4% 15.3% % mean 9.2% 6.4% 13.4% %

3 Table A3 Robustness check treatments: Individual market results for mispricing (RAD), overpricing (RD), average bid-ask-spread (SPREAD), share turnover (ST), and standard deviation of log returns (VOLA). Treatment Market RAD RD SPREAD ST VOLA T7 MAXFV % 1.0% 9.0% % % 26.5% 29.3% % 3 9.6% 1.6% 17.2% % % 24.5% 14.9% % % 67.1% 33.0% % % 47.5% 25.2% % mean 33.5% 19.3% 21.4% % T8 NOISE % 75.7% 82.8% % % 55.3% 36.6% % % 71.1% 32.9% % % 39.1% 58.5% % % 33.3% 23.2% % % 43.7% 26.7% % mean 57.0% 53.0% 43.5% %

4 Online Appendix B: Instructions of the investment game Investment game In the course of the experiment you are asked to make investment decisions. The performance of your investment depends on the (actual past) development of an index. The time series implemented in the experiment are taken from two major stock indices, namely the Dow Jones Industrial Average and the S&P 500, during the period of January 1928 to December For the experiment, the index values are modified such that the first observation always starts at 100. The experiment consists of 6 rounds (repetitions) and each round uses a unique time series that spans over a period of 72 (periods). At the beginning of each round, you receive an initial endowment of 1,000 Eurocent (10 Euro) and you see the time series development of the index for the first 24. Starting with period 24 you can invest a fraction (integer values ranging from 0 to 100) of your endowment in the future/unknown development of the index over the upcoming four. In the next step you are informed about the development of the index within this four (four data points are added to the chart) and your endowment is adjusted accordingly. At the same time you are asked which fraction you want to invest in the development of the index in the upcoming four. This procedure is repeated 12 times in each round until the time series expires in week 72. In total you will make 6 (rounds) times 12 = 72 investment decisions. Investment decision Your investment is expressed as a fraction of your current endowment, i.e., a integer value between 0 and 100. You have 20 seconds to make your investment decision for the upcoming four. If you fail to enter a valid number or you do not confirm your entry (by pressing the OK-button) the software will assume a fraction of 0. Your payment from the experiment is determined by the final endowment of one randomly selected round. The payment corresponds to the final endowment (after week 72) in Euro. The following examples visualize the determination of your payment. Example 1

5 Index value in period 24 (beginning of the investment decisions): 105 Fraction to invest: 40% (400 Eurocent are invested in the index, 600 are not invested). Index value in period 28 (end of the first investment phase): 111 Percentage change in the index: 111/105-1 = % Endowment in period 28: *( ) = (value rounded to integers) Example 2 Index value in period 24 (beginning of the investment decisions): 105 Fraction to invest: 70% (700 Eurocent are invested in the index, 300 are not invested). Index value in period 28 (end of the first investment phase): 99 Percentage change in the index: 99/105-1 = % Endowment in period 28: *( ) = (value rounded to integers) Example 3 If you decide to not invest in the development of the index (0 investment), your current endowment remains unchanged, independent of the development of the index. Trading screen (in German): By means of the following figure, the procedure of investing will be illustrated. Translation into English: Aktuelles Vermögen in Eurocent : Current wealth in Eurocent Prozentsatz des Vermögens, das Sie über die nächsten 4 Wochen investieren möchten (0-100%) : Percentage of wealth to be invested during the next 4 (0-100%) Periode : Period Vermögen in Eurocent (vergangene Wochen) : Wealth in Eurocent (past ) Prozentsatz des Vermögens, das investiert wurde (0-100%) : Percentage of wealth invested (0-100%) Entwicklung S&P 500 oder Dow Jones IA über einen Zeitraum von 72 Wochen : Development of the S&P 500 and the Dow Jones IA over 72 Indexstand (Woche 1 = 100) : Index (week 1 = 100) Woche : Week

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7 Online Appendix C: Investment game index paths Figures C1 and C2 provide information on the price (index) paths used in the six rounds of the NEG and POS experience treatments of the investment game, respectively. For each market we rearranged the order of appearance of each path. Each path was implemented once in each market. Information on the exact order of appearance is available from the authors upon request. Index values are adjusted to 100 in the starting week of the selected time period. For additional information the price path figures include starting and end date of the time series and information on the percentage change in the adjusted index value over the last 48. This information was not available to subjects in the experiment.

8 Example Bear 1 (DJIA) DJIA adjusted % down last 48 Example Bear 2 (DJIA) DJIA adjusted % down last 48 Example Bear 3 (S&P500) % down last 48 Example Bear 4 (S&P500) % down last 48 Example Bear 5 (S&P500) % down last 48 Example Bear 6 (S&P500) % down last 48 Fig. C1 Development of the six adjusted index values (S&P500 or DJIA adjusted) used in the NEG experience treatment of the investment game. The time period covers 72. Starting (ending) date are shown in the lower left (right) corner of the graph (dd.mm.yyyy). The value marked by the circle indicates the percentage change of the adjusted index value over the last 48.

9 Example Bull 2 (S&P500) Example Bull 1 (DJIA) % up last 48 DJIA adjusted % up last 48 Example Bull 3 (S&P500) Example Bull 4 (S&P500) % up last 48 % up last 48 Example Bull 5 (S&P500) Example Bull 6 (S&P500) % up last 48 % up last 48 Fig. C2 Development of the six adjusted index values (S&P500 or DJIA adjusted) used in the POS experience treatment of the investment game. The time period covers 72. Starting (ending) date are shown in the lower left (right) corner of the graph (dd.mm.yyyy). The value marked by the circle indicates the percentage change of the adjusted index value over the last 48.

10 Online Appendix D: Instructions of the market experiment 2 General Information Market experiment This experiment is concerned with replicating an asset market where traders can trade the assets of a fictitious company for 15 consecutive periods. Market Description The market consists of ten subjects. Each trader gets an initial endowment of 40 assets and a working capital of 3600 Taler. At the beginning of the experiment the asset has a value of 45. Evaluating the asset at its initial value yields that each subjects wealth adds up to 5400 Taler. In every period you can sell and/or buy assets, and your asset and Taler inventories are transferred to the next trading period, respectively. Each trading period automatically terminates after 2.5 minutes. Asset value At the end of each trading period, every asset pays a dividend (profit) which is added to your Taler holdings. The dividend (for one asset) amounts either 0, +3 or +6 Taler, given equal probability. Thus, an asset s average dividend is 3 Taler for every period. So, the value of the asset decreases by -3 Taler from period to period and assets are worthless after dividends are paid out at the end of period 15. V alue k = V alue k 1 3 You do not get any information about the dividend realization of the current period, i.e., you do not know the dividend payment for the current or the coming periods. You only know that the dividend either takes the values of 0, +3 or 6 (per asset) in each period. At the end of a period you will be informed about the dividend realization of the expired period. There is no interest for Taler holdings. Suppose for example that there are 4 periods remaining in a market. In each period the expected dividend payment is 3 Taler for each asset. If you hold one asset for 4 periods, the total dividend paid on the unit over 4 periods is 2 Screenshots are taken from T1. Trading screens are identical across treatments except treatment T2 FV, T7 MAXFV, and T8 NOISE where a separate information box displays the assets value, the maximum value of dividend payment or price information from a distinct market, respectively.

11 in expectation 4 * 3 = 12. Thus, the value of the asset is 12. Calculate Your Earnings After 15 periods assets are bought back at their terminal value of 0 (value at the end of period 15). Thus, at the end of the experiments your total earnings equal your Taler holdings. Your total earnings in this experiment are converted into Euro at a rate of 400 Taler = 1 Euro Example At the end of the experiment you own 50 assets and 6300 Taler. The terminal value of the assets equals 0. Your earnings in Euro are calculated as follows: Earnings in Taler: (50*0) = 6300 Earnings in Euro: 6300/400 = (rounded to integers: 16) Asset trading Trade is accomplished in a double auction, i.e., each trader can appear as buyer and seller at the same time. You can submit limit orders to buy/sell the asset ranging from 0 to a maximum of 999 Taler (with at most two decimal places). With every limit order you make, you have to enter the number of assets you intend to trade as well. Note that your Taler and asset inventory cannot drop below zero. Prices are solely determined by demand and supply of the traders within the market. If you buy assets, your Taler holding is diminished by the respective expenditures (price * volume). Inversely, if you sell assets, your Taler holding will be increased by the respective revenues (price * volume). Important information No interest is paid for Taler holdings. Each trading period lasts for 150 seconds. The main experiment ends after 15 periods. Use the full stop (.) as decimal place.

12 Trading screen: By means of the following figure, the procedure of trading (buying and selling) will be illustrated. 3 Information about current Stock and Taler holdings. Summary tables of your own BIDS and ASKS. With the CANCEL -buttons you can delete your own offers. Current Market Price (of Stock) ASK: analogue to Purchase BID - see below. BID: you have to enter Quantity and Price. Trade does not take place until another participant accepts your offer!!! List of all BIDS: from all traders - your own Bids are written in blue. The offer with blue background is always the best, i.e., it yields the highest revenues for the seller. Price-Chart of current period List of all ASKS: from all traders - your own Asks are written in blue. The offer with blue background is always the best, i.e., it is the cheapest one for the buyer. SELL: You sell the entered Quantity, given the Price with the blue background. If you enter a higher amount than offered in the blue box, you sell the offered Quantity at most. BUY: You buy the entered Quantity, given the Price with the blue background. If you enter a higher amount than offered in the blue box, you buy the offered Quantity at most. 3 In T2 FV an additional box was displayed left of labeled Value where the current value of a period was displayed. In T7 MAXFV an additional box was displayed left of labeled Maximum value where the maximum possible value of the asset was displayed. In T8 NOISE an additional box was displayed left of labeled Average price this period of another market where the a price series of another experiment, unrelated to this series, was displayed.

13 History screen: appears after each trading period (for 15 seconds), providing you with information of past period. Price-Chart, displaying average prices of previous periods. Actual Dividend realization (for one asset) in the respective period. Closing Price of the asset (in the respective period). The asset s value in the respective period: After 15 periods assets are bought back at their terminal value (value in period 15). Your total earnings consist of the asset s terminal value multiplied by your stock holdings plus your Taler holdings.