Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960884 | Journal of Financial Markets | 2016 | 20 Pages |
Abstract
Asset prices tend to cluster at round numbers. We examine betting exchange data on U.K. horse races to establish whether limited cognition is partially responsible for this clustering. The key tool in this study is the stark increase in cognitive load faced by traders during races compared to prior to races. Using an approach that is part regression discontinuity and part difference-in-differences, we find that traders exhibit a substantially higher propensity to quote round numbers, rather than the nearest non-round numbers, during races. This result is robust to a series of placebo tests.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Alasdair Brown, Fuyu Yang,