Herd behavior and contagion in financial markets

Imitative behavior and contagion are well-documented regularities of financial markets. We study whether they can occur in a two-asset economy where rational agents trade sequentially. When traders have gains from trade, informational cascades arise and prices fail to aggregate information dispersed among traders. During a cascade all informed traders with the same preferences choose the same action, i.e., they herd. Moreover, herd behavior can generate financial contagion. Informational cascades and herds can spill over from one asset to the other, pushing the price of the other asset far from its fundamental value

Herd behavior in financial markets: an experiment with financial market professionals

We study herd behavior in a laboratory financial market with financial market professionals. An important novelty of the experimental design is the use of a strategy-like method. This allows us to detect herd behavior directly by observing subjects' decisions for all realizations of their private signal. In the paper, we compare two treatments: one in which the price adjusts to the order flow in such a way that herding should never occur, and one in which the presence of event uncertainty makes herding possible. In the first treatment, subjects seldom herd, in accordance with both the theory and previous experimental evidence on student subjects. A proportion of subjects, however, engage in contrarianism, something not accounted for by the theory. In the second treatment, the proportion of herding decisions increases, but not as much as the theory would suggest. Moreover, contrarianism disappears altogether. In both treatments, in contrast with what theory predicts, subjects sometimes prefer to abstain from trading, which affects the process of price discovery negatively

Herd behavior and contagion in financial markets

We study a sequential trading financial market where there are gains from trade, that is, where informed traders have heterogeneous private values. We show that an informational cascade (i.e., a complete blockage of information) arises and prices fail to aggregate information dispersed among traders. During an informational cascade, all traders with the same preferences choose the same action, following the market (herding) or going against it (contrarianism). We also study financial contagion by extending our model to a two-asset economy. We show that informational cascades in one market can be generated by informational spillovers from the other. Such spillovers have pathological consequences, generating long-lasting misalignments between prices and fundamentals

Herding and price convergence in a laboratory financial market

We study whether herding can arise in a laboratory financial market in which agents trade sequentially. Agents trade an asset whose value is unknown and whose price is efficiently set by a market maker. We show that the presence of a price mechanism destroys the possibility of herding. Most agents follow their private information and prices converge to the fundamental value. This result contrasts with the case of a fixed price, where herding and cascades arise. When the price moves, however, agents may behave as contrarian, i.e., they may trade against the market, something not accounted for by the theory. Finally, we study whether informational cascades arise when trade is costly (e.g, because of a Tobin tax). With trade costs, most subjects rationally decided not to trade and the price was unable to aggregate private information efficiently

Transaction costs and informational cascades in financial markets: theory and experimental evidence

We study the effect of transaction costs (e.g., a trading fee or a transaction tax, like the Tobin tax) on the aggregation of private information in financial markets. We analyze a financial market à la Glosten and Milgrom, in which informed and uninformed traders trade in sequence with a market maker. Traders have to pay a cost in order to trade. We show that, eventually, all informed traders decide not to trade, independently of their private information, i.e., an informational cascade occurs. We replicated our financial market in the laboratory. We found that, in the experiment, informational cascades occur when the theory suggests they should. Nevertheless, the ability of the price to aggregate private information is not significantly affected

On the definition of temperature in FPU systems

It is usually assumed, in classical statistical mechanics, that the temperature should coincide, apart from a suitable constant factor, with the mean kinetic energy of the particles. We show that this is not the case for \FPU systems, in conditions in which energy equipartition between the modes is not attained. We find that the temperature should be rather identified with the mean value of the energy of the low frequency modes.Comment: 12 pages, 4 Figure

From anomalous energy diffusion to Levy walks and heat conductivity in one-dimensional systems

The evolution of infinitesimal, localized perturbations is investigated in a one-dimensional diatomic gas of hard-point particles (HPG) and thereby connected to energy diffusion. As a result, a Levy walk description, which was so far invoked to explain anomalous heat conductivity in the context of non-interacting particles is here shown to extend to the general case of truly many-body systems. Our approach does not only provide a firm evidence that energy diffusion is anomalous in the HPG, but proves definitely superior to direct methods for estimating the divergence rate of heat conductivity which turns out to be $0.333\pm 0.004$, in perfect agreement with the dynamical renormalization--group prediction (1/3).Comment: 4 pages, 3 figure

The aluminum and iron mines of the Comino Valley-Sora area (Central Apennines, Italy). Sites of the geological memory

The Mesozoic bauxitic-limonitic deposits of the Comino ValleySora area have been exploited since proto-historic times, but this area became crucial for the "iron rush" in the Bourbon era. The Kingdom of Naples decided to finance scientific researches in the area between Pescosolido and Picinisco (southeastern Lazio), in order to strengthen military defenses and to combat invasive or rebellious pressures. This led to the realization, in the period between 1770 and 1860, of the Royal Mines of Canneto, San Donato Val di Comino and Campoli Appennino, and of the Royal Forges of Canneto and Rosanisco. Fundamental was the supervision of technicians, including the engineer and geologist Gaetano Tenore. Following the Bourbon crisis of 1860, the industrial activity of the area was abandoned with, in many cases, its definitive loss of evidence (e.g. many of the mines of Campoli and San Donato Val di Comino, as well as the Canneto forge). The geological relevance of the mineralogical and stratigraphic studies performed in this area (with their socio-cultural and economic implication), coupled with the fact that most of this geological heritage is disappearing, allowed to identify several "sites of geological memory" in this area

Ergodic property of Markovian semigroups on standard forms of von Neumann algebras

We give sufficient conditions for ergodicity of the Markovian semigroups associated to Dirichlet forms on standard forms of von Neumann algebras constructed by the method proposed in Refs. [Par1,Par2]. We apply our result to show that the diffusion type Markovian semigroups for quantum spin systems are ergodic in the region of high temperatures where the uniqueness of the KMS-state holds.Comment: 25 page