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

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

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

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

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

Failure time and critical behaviour of fracture precursors in heterogeneous materials

The acoustic emission of fracture precursors, and the failure time of samples of heterogeneous materials (wood, fiberglass) are studied as a function of the load features and geometry. It is shown that in these materials the failure time is predicted with a good accuracy by a model of microcrack nucleation proposed by Pomeau. We find that the time interval $$ between events (precursors) and the energy $\varepsilon$ are power law distributed and that the exponents of these power laws depend on the load history and on the material. In contrast, the cumulated acoustic energy $E$ presents a critical divergency near the breaking time $\tau$ which is % E\sim \left( \frac{\tau -t}\tau \right) ^{-\gamma }. The positive exponent $$ is independent, within error bars, on all the experimental parameters.Comment: to be published on European Physical Journa

Association of endometrioid ovarian carcinoma arising from endometriosis, endometrioid endometrial carcinoma, and high-grade undifferentiated endometrial sarcoma. a case report

Endometriosis is a chronic disease that affects women of reproductive age. Malignant transformation in endometriosis is considered to be an unusual event, only occurring in 0.7-0.1% of cases. However the association between endometriosis and endometrial cancer is not well defined. Also in literature, rare cases of uterine sarcoma, about 3% of all uterine malignancies, associated with endometriosis have been reported. The authors report a case of a 47-years-old Italian woman with histologic diagnosis of endometrioid ovarian carcinoma arising from endometriosis, endometrioid endometrial carcinoma, and undifferentiated endometrial sarcoma. Therefore there have been few studies addressing the relationship between endometrial stromal sarcomas (ESS), and endometriosis. Novel scientific findings are necessary to investigate a possible common pathway and an effective treatment, although complete tumor resection can reduce the recurrence rate

Ovarian endometrioid adenocarcinoma diagnosed in pregnancy. a case report

The prevalence of adnexal masses pregnancy is about 0.19-8.8%. The malignancy rate is around 1-6%, and indeed most cases are benign masses. During pregnancy adnexal masses should be accurately evaluated to identify the patients who need surgery from those who need a 'wait-and-see' strategy. The authors report a case of 36-year-old woman (gravida 2, para 2, two vaginal deliveries) referred to the Gynecologic Department with diagnosis of endometrioid ovarian adenocarcinoma. The patient underwent laparotomic surgery with left salpingo-oophorectomy, total hysterectomy, pelvic and para-aortic lymphadenectomy, and peritoneal washing for optimal surgery staging. No ascites or residual tumour in the abdominal cavity were found macroscopically. Histopathology was negative for residual ovarian cancer. Currently the treatment and the management of ovarian cancer are not well established because scientific evidence is limited

A new multiparametric topological method for determining the primary cosmic ray mass composition in the knee energy region

The determination of the primary cosmic ray mass composition from the characteristics of extensive air showers (EAS), obtained at an observation level in the lower half of the atmosphere, is still an open problem. In this work we propose a new method of the Multiparametric Topological Analysis and show its applicability for the determination of the mass composition of the primary cosmic rays at the PeV energy region.Comment: 8 pages, 4 figures, talk given at Vulcano 2004 Workshop 'Frontier Objects in Physics and Astrophysics', Vulcano, Italy, 24-29.05.04, to be published in the Proceedings of the Worksho