Workshop Series: Shimon Kogan
We perform an experimental study of complexity to assess its effect on trading behavior, price volatility, liquidity, and trade efficiency. Subjects were asked to deduce the value of a particular asset from information they were given about the composition and price of several portfolios. Following that, subjects traded with each other anonymously in a well-defined, simple bargaining process. Portfolio composition ranged from requiring simple analysis to more complicated computation in order to deduce the value of the asset. Complexity altered subjects' bidding strategies, decreased liquidity, increased price volatility, and decreased trade efficiency. However, in follow-up experiments, we show that uncertainty over private values does not lead to the same changes in trading behavior. Therefore, while complexity induces estimation errors and higher uncertainty, this is not what drives our results.
Followed by lunch
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Dr. Kogan is an Assistant Professor of Finance at the University of Texas at Austin and a visiting faculty at IDC. Prior to joining the University of Texas, he was on the Carnegie Mellon University Finance faculty and held a number of investment management positions. He earned his MBA and PhD from the University of California at Berkeley and his BA from Tel Aviv University. His research focuses on behavioral finance with application to asset pricing. Dr. Kogan's research appeared in some of the profession's top journal s such as the Review of Financial Studies and the American Economic Review, and he was invited to present his work in leading conferences and universities, such as MIT, Harvard, and Yale.