NBER Publications by 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 problems ranged from requiring simple analysis to more complicated computation. Complexity altered subjects' bidding strategies, decreased liquidity, increased price volatility, and decreased trade efficiency. Female subjects were affected more by complexity (e.g., lower trade frequency), although they achieved higher payoffs in the complex treatment. Our analysis suggests that complexity ma...

We provide new empirical evidence suggesting that the marginal investor in mutual funds behaves differently across market conditions. If the marginal investor allocates capital across mutual funds rationally, then the relative performance of funds should be unpredictable. We find however that relative fund performance is predictable after periods of high market returns but not after periods of low market returns. The asymmetric predictability in performance we document cannot be explained by time-varying differences in transaction costs or style exposures between funds, or by sample selection. Consistent with the hypothesis that the asymmetric predictability in performance may be driven by unsophisticated investors' mistakes when allocating capital, we document that performance predictabil...