Herding, contrarianism and delay in financial market trading

Herding and contrarian behaviour are often-cited features of real-world financial markets. Theoretical models of continuous trading that study herding and contrarianism, however, usually do not allow traders to choose when to trade or to trade more than once. We present a large-scale experiment to explore these features within a tightly controlled laboratory environment. Herding and contrarianism are more pronounced than in comparable studies that do not allow traders to time their decisions. Traders with extreme information tend to trade earliest, followed by those with information conducive to contrarianism, while those with the theoretical potential to herd delay the most. A sizeable fraction of trades is clustered in time.

► We present an experiment on herding and contrarianism in financial market trading. ► We add to theoretical work by allowing traders to choose their trade-time. ► Herding and contrarianism are more pronounced compared to studies without timing. ► Extreme signal traders act earliest, herding signal traders delay the most. ► A sizeable fraction of trades is clustered in time.