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Exploring the Nature of “Trader Intuition”
Author(s) -
BRUGUIER ANTOINE J.,
QUARTZ STEVEN R.,
BOSSAERTS PETER
Publication year - 2010
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2010.01591.x
Subject(s) - intuition , database transaction , financial economics , autoregressive conditional heteroskedasticity , persistence (discontinuity) , economics , theory of mind , business , microeconomics , monetary economics , psychology , volatility (finance) , computer science , cognition , neuroscience , cognitive science , geotechnical engineering , engineering , programming language
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.