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Trading while sleepy? Circadian mismatch and mispricing in a global experimental asset market

Published online by Cambridge University Press:  14 March 2025

David L. Dickinson Open the ORCID record for David L. Dickinson [Opens in a new window] ,
Ananish Chaudhuri  and
Ryan Greenaway-McGrevy
David L. Dickinson*
Affiliation:
Appalachian State University, 3090 Peacock Hall, 28608-2037 Boone, NC, USA IZA, Bonn, Germany ESI, Orange, CA, USA
Ananish Chaudhuri*
Affiliation:
University of Auckland, Auckland, New Zealand CESifo, Munich, Germany
Ryan Greenaway-McGrevy*
Affiliation:
University of Auckland, Auckland, New Zealand
*
dickinsondl@appstate.edu
a.chaudhuri@auckland.ac.nz
r.mcgrevy@auckland.ac.nz
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Abstract

Traders in global markets operate at different local times-of-day. This implies heterogeneity in circadian timing and likely sleepiness or alertness of those traders operating at less or more optimal times of the day, respectively. This, in turn, may lead to differences in both individual-level trader behavior as well as market level outcomes. We examined these factors by administering single-location and global sessions of an online asset market experiment that regularly produces mispricing and valuation bubbles. Global sessions involved real time trades between subjects in New Zealand and the U.S (i.e., “global” markets) with varied local times of day for each location. Individual traders at suboptimal times of day (or, “circadian mismatched” traders) engaged in riskier trading strategies, such as holding shares (the riskier asset) in later trading rounds and mispricing shares to a greater degree. These strategies resulted in lower earnings for circadian mismatched traders, especially in heterogeneous markets that also included traders at more optimal times-of-day. These differences were also reflected in market level outcomes. Markets with higher circadian mismatch heterogeneity across traders were more likely to exhibit longer lasting asset bubbles and greater share turnover volume. Overall, our results draw attention to a unique, but underappreciated, factor present across traders in global market environments, namely, differences in sleepiness across traders. Thus, this study hopes to highlight the role of circadian mismatch in attempting to understand trader behavior and, ultimately, market volatility.

Keywords

Asset marketsExperimentsBubblesSleepCircadian rhythm

JEL classification

D84: Expectations • Speculations G12: Asset Pricing • Trading Volume • Bond Interest Rates G15: International Financial Markets C92: Laboratory, Group Behavior
Type
Original Paper
Information
Experimental Economics , Volume 23 , Issue 2 , June 2020 , pp. 526 - 553
Copyright
Copyright © 2019 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10683-019-09623-0) contains supplementary material, which is available to authorized users.

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