TY  - JOUR
AU  - Carlin,Bruce I.
AU  - Kogan,Shimon
TI  - Trading Complex Assets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16187
PY  - 2010
Y2  - July 2010
UR  - http://www.nber.org/papers/w16187
L1  - http://www.nber.org/papers/w16187.pdf
N1  - Author contact info:
Bruce I. Carlin
Anderson Graduate School of Management
UCLA
110 Westwood Plaza, Suite C413
Los Angeles, CA 90095-1481
Tel: 310/825-7246
E-Mail: bruce.carlin@anderson.ucla.edu

Shimon Kogan
Finance Department
McCombs School of Business
University of Texas at Austin
1 University Station  B6600
Austin, TX  78712
E-Mail: shimon.kogan@mccombs.utexas.edu
AB  - 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 may be a driver of volatility and liquidity in financial markets and provides novel testable empirical predictions.
ER  -