Rational Investor Sentimentina Repeated Stochastic Game with Imperfect Monitoring

Anke Gerbery (1) , Thorsten Hensz (2) , Bodo Vogtx (3)

1 Department of Economics
2 UZH - Universität Zürich [Zürich] = University of Zurich
3 Department of Economics

We consider a repeated stochastic coordination game with imperfect pub-lic monitoring. In the game any pattern of coordinated play is a perfect Bayesian Nash equilibrium. Moreover, standard equilibrium selection argu-ments either have no bite or they select an equilibrium that is not observed in actual plays of the game. We give experimental evidence for a unique equilibrium selection and explain this very robust finding by equilibrium selection based on behavioral arguments, in particular focal pointanalysis, probability matching and overconfidence. Our results have interesting ap-plicationsinifinance because the observed equilibrium exhibitsmomentum, reversal and excessvolatility. Moreover, the results may help to explain why technical analysisis acommonly observed investment style.

Mots clés: Coordination games; Behavioral equilibrium selection; experimental asset markets; behavioral finance; Investor sentiment; Technical analysis

Domaines: Économie et finance quantitative [q-fin]

Anke Gerbery, Thorsten Hensz, Bodo Vogtx. Rational Investor Sentimentina Repeated Stochastic Game with Imperfect Monitoring. Journal of Economic Behavior and Organization, 2010, 76 (3), pp.669. ⟨10.1016/j.jebo.2010.08.001⟩. ⟨hal-00911824⟩