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“Bubbles in hybrid markets — How expectations about algorithmic trading affect human trading”

Mike Farjam and Oliver Kirchkamp

Bubbles are omnipresent in lab experiments with asset markets. Most of these experiments were conducted in environments with only human traders. Today markets are substantially determined by algorithmic traders. Here we use a laboratory experiment to measure changes of human trading behaviour if these humans expect algorithmic traders. We want to separate the direct from the indirect effect of algorithmic traders and we want to be independent of a specific algorithm. In our experiment we manipulate only the expectations of human traders. We find clearly smaller bubbles if human traders expect algorithmic traders to be present.

JEL: C92, G02

Keywords: Bubbles, Expectations, Experiment, Algorithmic Traders.