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Marco Cipriani, Antonio Guarino, Noise Trading in a Laboratory Financial Market: A Maximum Likelihood Approach, Journal of the European Economic Association, Volume 3, Issue 2-3, 1 May 2005, Pages 315–321, https://doi.org/10.1162/jeea.2005.3.2-3.315
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Abstract
We study the extent to which, in a laboratory financial market, noise trading can stem from subjects' irrationality. We estimate a structural model of sequential trading by using experimental data. In the experiment, subjects receive private information on the value of an asset and trade it in sequence with a market maker. We find that, in the laboratory, the noise due to the irrational use of private information accounts for 35% of the decisions. When subjects act as noise traders, they abstain from trading 67% of the time. When they trade, the probability that they buy is significantly higher than the probability that they sell.