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Journal of Finance Vol. 65 No. 5 2010

Exploring the Nature of “Trader Intuition”

ANTOINE J. BRUGUIER1; STEVEN R. QUARTZ1; Peter Bossaerts2,3

1 California Institute of Technology · 2 The University of Melbourne · 3 University of Cambridge

open access

Abstract

Experimental evidence has consistently confirmed the ability of uninformed traders, even novices, to infer information from the trading process. After contrasting brain activation in subjects watching markets with and without insiders, we hypothesize that Theory of Mind (ToM) helps explain this pattern, where ToM refers to the human capacity to discern malicious or benevolent intent. We find that skill in predicting price changes in markets with insiders correlates with scores on two ToM tests. We document GARCH‐like persistence in transaction price changes that may help investors read markets when there are insiders.

DOI
10.1111/j.1540-6261.2010.01591.x
Volume
65
Issue
5
Pages
1703-1723
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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