Three experiments examined the role of reputation for alleviating the lemons problem in an online market, and produced the following findings. First, information asymmetry drives the experimental market into a lemons market. Second, reputation about other traders moderately alleviates the lemons problem. Third, the power of reputation as a solution to the problem of lemons is substantially redu...

The allocation of order flow to alternative trading systems can be understood as a game with strategic substitutes between buyers on the same side of the market, as well as one of positive network externalities. We consider the allocation of order flow between a crossing network and a dealer market and show that small differences in traders’ preferences generate a unique switching equilibrium, ...

We develop a simple model with technical and fundamental traders to explain the cyclical motion of commodity prices. The crucial element of our model is a nonlinear market impact of technical traders: Estimation of our STAR-GARCH model using monthly US corn price data reveals that technical traders increasingly enter the market as booms or slumps enlarge. One reason may be that they only gradua...

This paper investigates the performance of efficient portfolios in a financial market with heterogeneous investors including rational traders, noise traders, and chartists. A generalization of the security market line result states that, regardless of the diversity of beliefs, the portfolios of rational investors with mean-variance preferences are mean-variance efficient in the sense of classic...

In this paper we continue our descriptions of stock markets in terms of some non abelian operators which are used to describe the portfolio of the various traders and other observable quantities. After a first prototype model with only two traders, we discuss a more realistic model of market with an arbitrary number of traders. For both models we find approximated solutions for the time evoluti...

This paper shows that traders in index futures markets are positive feedback traders—they buy when prices increase and sell when prices decline. Positive feedback trading appears to be more active in periods of high investor sentiment. This finding is consistent with the notion that feedback trading is driven by expectations of noise traders. Consistent with the noise trading hypothesis, order ...

Three experiments examined the role of reputation for alleviating the lemons problem in an online market, and produced the following findings. First, information asymmetry drives the experimental market into a lemons market. Second, reputation about other traders moderately alleviates the lemons problem. Third, the power of reputation as a solution to the problem of lemons is substantially redu...