Speculative Behavior Research Articles

A Study of Human Price Speculation Behavior

Through a sweeping study of the world’s major financial markets, this paper divides the financial speculative prices into three distinctive models, viz. free speculative price, compound price and arbitrary speculative prices. An attempt is then made to probe the inter-relationship and function formula of such models. The paper then lays emphasis on the environment and principles contributing to the formation of the free speculative prices paving the way for a review of the bitcoin, the US Stock Market DJIA index and China’s Shanghai Stock Market Composite index as testimony to the existence of the free speculative price. Furthermore, this paper discusses the close relationship between the free speculative price and the “Spontaneous Order Principle” along with the contention that human price speculation behavior covers all the essential characteristics of behavior on the part of human society. Keywords:

OTree: The bubble game

Bubbles and speculative behavior have been documented in real-world and experimental asset markets alike. Moinas and Pouget (2013) introduce the bubble game representing a sequential market with both bubble and no-bubble equilibria, in which speculative behavior can be analyzed using concepts from game theory. This article presents a ready-to-use software application for oTree (Chen et al., 2016) which allows to easily conduct the game in various settings within a modern web-programming framework. Researchers can adapt the game to their needs in a straightforward way by modifying thoroughly-documented variables in a single file. The software module supports responsive graphical designs and is prepared for multilingual use on any device with a web browser, allowing the implementation in the field, the laboratory, the classroom, or online.

An Empirical Assessment of Performance Measurement & Management of the Public Sector by Way of the NPM Tools: A Review of the Public Sector of Czech Republic

Czech Republic’s 2017 economic indicators gave quite significant performance and also showed resilience with consistency and prudence in its monetary policies within its inflation targeting framework. This performance could be attributed to prudent economic factors and also due to a combined relatively tight monetary policy and also accommodating fiscal policy measures. (IMF country Report Oct. 2017). In spite of all these positive macroeconomic indicators one cannot overlook the role played by measuring and managing performance within the country’s public sector. It is worthy to know that the introduction of Performance measurement as well as management within the public sector is a way to ensure transparency, Efficiency and Effectiveness in making decision that will inure to the benefit of the public sector in terms of using public funds to boost performance in the economy. This notwithstanding the picture is quite different in terms of its practice thus striking several impediments defining performance, identifying suitable indicators as well as implementing a performance management system. It is however noteworthy that the challenge is still present as of today i.e. identifying the most suitable modules for measuring and managing performance within the public sector so as not to come up with a speculative behavior of managers within the public sector of global economies. We are by this paper seeking to present the modules employed in measuring performance within the public sector of the Czech Republic as well as other drawbacks generated by these modules. We further do an assessment of the perverse effects measuring performance have on the public sector, since its knowledge will be useful in building an optimal system for measuring and managing performance. We will also do a critical review of the New Public Management (NPM) considered by many as a paradigm shift in public administration which points out the failures and or the limitations of public sector overtime and the associated problems, its nature and processes. We will also do a further assessment of some of the criticism of the NPM doctrine from the political point of view in other transitional countries and finally hypothesize the way by which these systems are employed depending on the characteristics of its activities especially in terms of contractibility, which is considered a broad construct incorporating clarity of goals, its ability to select undistorted performance metrics, and the degree by which public sector managers appreciate and control its transformational process.

Use of Systematic Approach in Accident Risk Analysis for Motorcyclists: A Conceptual Idea

Thus far, minimum stopping sight distance (SSD) is determined based on design speed, a minimum reaction time of 1.64 s and a deceleration rate of 3.4 m/s², whereas in certain situations the latter can be shorter than 1 s and higher than 4.5 m/s². Awareness of this can trigger speculative behavior, as can be seen from the choice of speed and/or the critical crossing gap, which is often smaller than the recommended minimum SSD. This study focused on the development of an appropriate minimum SSD model that is suited to risky conditions at an un-signalized intersection and its possible usage in accident risk evaluation, particularly for motorcyclists. The data were taken from direct measurements and related studies. Variables that potentially influence minimum SSD were tested. The results strongly suggest that the speed reduction achieved by downshifting significantly influences both the braking distance and the impact speed. Moreover, the minimum SSD obtained from the proposed model significantly differs from that obtained from a similar model recommended by AASHTO. Therefore, it is worthwhile to consider the application of the proposed minimum SSD as an accident probability indicator parameter.

Speculative Behavior in Vacant Land Development: Evidence for Real Options in Malaysia

The development of vacant land may be seen from a real options perspective—owners of vacant land have the incentive to delay developing the land and keep their options open (keep the lands undeveloped) if they believe that future development will yield higher value. We investigate whether there is speculative behavior with regard to vacant land development in Malaysia. Using samples of 254 vacant plots of lands and 3,681 houses in Selangor, Malaysia, we find that the option premium for vacant lands ranges from 8% to 20% across all areas in Selangor. We posit that the higher option premium for vacant lands is the result of a higher level of speculation by landowners. We also find that, while the option value increases, the intrinsic value reduces the market price of the vacant land. Our findings are indicative of speculative behavior by the owners of vacant land in Malaysia.

An Experimental Test of the Lucas Asset Pricing Model

Abstract We implement a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In the first treatment, we impose diminishing marginal returns to cash to incentivize consumption smoothing across periods. We find that subjects use the asset to smooth consumption, although the asset trades at a discount relative to the risk-neutral fundamental price. This under-pricing is a departure from the asset price “bubbles” observed in the large experimental asset pricing literature originating with Smith et al. (1988) and can be rationalized by considering subjects’ risk aversion with respect to uncertain money earnings. In a second treatment, with no induced motivation for trade à la the Smith et al. design, we find that the asset trades at a premium relative to its expected value and that shareholdings are highly concentrated. Elimination of asset price uncertainty in additional experimental treatments serves to reinforce the same observations, and suggests that speculative behaviour explains the departure of prices from fundamental value in the absence of a consumption-smoothing motive for asset trades.

Influencing Characteristics for Housing Product in Jakarta Metropolitan Area

This research paper will try to analyze the relationship between influencing characteristics for housing product prices in Jakarta Metropolitan Region. The aforementioned characteristics are viewed from the property practitioner's perception. To find the answer to this research paper's questions, seven property practitioners were interviewed to test the initial hypotheses. The findings suggest that brands, facilities, developer reputations, pricing policies, reinvestment values, and speculative behavior play significant parts as internal and external attributes for housing prices in Jakarta Metropolitan Region.

Treading water: Street sex workers negotiating frantic presents and speculative futures in the Mekong Delta, Vietnam

Structural conditions shape the temporalities that govern the lives of street sex workers operating in Châu Đốc, a small town in Southern Vietnam. These women live each day as they come and make decisions based on quick returns and the management of daily needs, prioritizing short-term solutions over planning for the future. The ethnographic study of the multiple temporalities that govern street sex work, family care, gambling and debt-juggling practices shows that these women live in a frantic present-oriented temporality that is filled with pressing tasks and routines. This leads to an uncertain future that engenders various forms of hopeful and speculative behaviour, but precludes systematic planning. As a result, these women are treading water: putting effort into keep themselves afloat but never furthering their status and lives or catching up with the currents of development and progress. Overall, this article argues that this day-to-day lifestyle goes hand in hand with the linear and future-oriented time of capitalism and wage-labour that has infiltrated everyday life in post-reform Vietnam.

J M Keynes on the Enemies of Capitalism: The Internal, Endogenous Threat to the Macro Economy from Wall Street Stock Market Speculators and Rentiers

J M Keynes carefully read Adam Smith’s The Wealth of Nations (1776) before he was 28. Of extreme importance to Keynes was Smith’s categorization of a group of upper income class citizens, whose speculative and financial interactions with the private banking industry created a very severe danger to the society as a whole, as being projectors, imprudent risk takers, and prodigals. Keynes’s description of Smith’s projectors, imprudent risk takers, and prodigals in the General Theory, as well as Keynes’s extremely important, early 1937 papers in the Eugenics Review and Quarterly Journal of Economics, is that Smith’s projectors, imprudent risk takers, and prodigals are Keynes’s Wall Street speculators and rentiers. It is the speculators and rentiers who are mainly responsible for the problems of inflation and deflation in the macro economy. Keynes realized that this destructive, casino-gambling type behavior that is so damaging to the macro economy is facilitated and financed by the “…forces of banking and finance”. Keynes’s Chapter Twelve analysis on pages 147-162 in the General Theory of the speculative dangers resulting from the financial behavior of Wall Street speculators and rentiers is identical to Smith’s pages 114-115, 279-341 discussions in the Wealth of Nations of the dangers from projectors, imprudent risk takers, and prodigals. Both Smith’s and Keynes’s analysis complements each other. Both Smith and Keynes could have given the exact, same, vastly superior analysis and policy advice to government officials facing the 2007-2009 Great Recession that would have been greatly superior to the type of very poor policy analysis provided by DSGE macroeconomists in the period 2006-2010. Both Smith and Keynes explicitly point out and analyze the malign impacts(see Kennedy, 2008) on the macro economy perpetrated by either Smithian projectors, imprudent risk takers, or prodigals or Keynesian speculators and rentiers. The role of government is to impose constraints on these categories of upper income class members so as to prevent them from harming the sober people by proactive laws, rules, and regulations. The obvious reason that DSGE macro models failed so egregiously is that there are no variables in their models representing the impacts of these types of decision makers on the macro economy over time. The reason for this misspecification modeling error by DSGE proponents is that they accept Bentham’s critique of Smith that there are no such individuals in the economy as Smith’s projectors, imprudent risk takers, or prodigals.

Neighborhood effects on speculative behavior

Speculative behavior plays a key role in numerous markets, but little is known about its causes. We test for neighborhood effects on speculative behavior using daily lottery sales data from 20 states in the U.S. In a sample of 160,000 retailers, lottery sales in a census block increase by $0.26, on average, for each $1 increase in neighboring blocks. We test whether this correlation is attributable to contextual effects, correlated effects, or endogenous effects. Our analysis suggests that social interaction is an important cause of speculative behavior.

Analysis of land speculation in the urban fringe of Lagos, Nigeria

This study investigates and analyses factors motivating land speculators operating in the urban fringe of Lagos, Nigeria. The paper, in addition to contributing to literature, is the first known attempt to study the behaviour of land speculators in the urban fringe of a growing African megacity with a population in excess of 17 million. Between September and December 2016, two questionnaire surveys were separately administered with a representative random sample of 97 members of the Real Estate Developers Association of Nigeria (REDAN), including 14 members who are actively operating their land, and 12 senior officials of the Lagos Land Bureau. Principal component matrix was constructed to identify the most critical factors determining such acquisitions. Findings reveal seven themed-principal components and a speculative motive that is not related to any desire to resolve the lingering housing supply problem. Land speculators indicated their tendency to acquire for future sale, promote self-esteem and pursue private profiteering business. Furthermore, regulatory lapses, location preference, informality of land title as well as relatively cheap land promote speculative land acquisitions without actual development. Hence, to develop smart cities for solving the lingering housing problem in Nigeria, speculative activities of land developers must be thoughtfully controlled.

Does Bitcoin bubble burst?

This paper explores when will occur and collapse in Bitcoin bubbles by applying generalized sup augmented Dickey–Fuller test method proposed by Phillips et al. (Testing for multiple bubbles: historical episodes of exuberance and collapse in the S&P 500. Singapore Management University, Working Paper, No. 04-2013, 2013). The results show that there are six explosive bubbles in China and five bubbles in U.S. market, mostly occur in the period of huge surges in Bitcoin price. This is consistent with the bubble model originated by Blanchard and Watson (Bubbles, rational expectations and financial markets. NBER Working Paper, No. 945 1982) that certain asset price is decomposed into fundamental and the bubble components. In particular, exogenous shocks, including foreign or domestic economic events lead to the origination of bubbles. Serious financial crisis may trigger long-term and large- scale bubbles, while relative not persistence (short-term) bubbles are caused by domestic particular components. It can be inferred that Bitcoin can be used as a hedge against market specific risk. Finally, Bitcoin bubbles would collapse due to the administrative intervention by economic authorities. Thereby, government should lead public expectation to keep the confidence to authority and reduce the speculation behavior to stabilize the asset price and financial market.

Individual speculative behavior and overpricing in experimental asset markets

A rich history of theoretical models in finance shows that speculation can lead to overpricing and price bubbles. We provide evidence that, indeed, individual speculative behavior fuels overpricing in (experimental) asset markets. In a first step, we elicit individual speculative behavior in a one-shot setting with a novel speculation elicitation task (SET). In a second step, we use this measure of speculative behavior to compose dynamic, continuous double auction markets in line with Smith et al. (Econometrica 56(5):1119–1151, 1988). We find significant higher overpricing in markets with traders who exhibited more speculative behavior in the individual SET. However, we find no such differences in overpricing when we test for alternative explanations, using a market environment introduced by Lei, Noussair, and Plott (Econometrica 69(4):831–859, 2001) where speculation is impossible. Taken together, our results corroborate the notion that speculation is an important factor in overpricing and bubble formation if market environments allow for the pursuit of capital gains.

Speculation under unawareness

“No trade” theorems establish that, in various trading environments, investors who share a common prior will not engage in speculation, as long as expected utility, Bayesian updating and full awareness are imposed. We relax the last assumption by allowing for asymmetric unawareness and examine under which conditions speculative behaviour emerges. We find that if common knowledge is assumed (as in the settings of Aumann, 1976 and Milgrom and Stokey, 1982), unawareness cannot generate speculation. This is not true, however, in settings where no common knowledge is assumed, such as speculation in equilibrium (Geanakoplos, 1989) and betting that is always beneficial (Morris, 1994), unless stronger conditions on awareness are imposed.

The Effect of Risk Changes on Carry Trade Returns and Speculative Behavior

This paper analyzes the time-series reaction of carry trade returns to changes in various risk factors. Using non-linear methods, I find that implied currency volatility is an informative time-series predictor. Increases (declines) in the implied currency volatility (or, generally, perceptions of future risk) result in lower (higher) subsequent carry trade returns. The reaction to extreme changes in these risk perceptions is even more pronounced. Using futures positioning data, it is shown that speculators tend to sell carry trade positions upon a perception of increased risk and vice versa. A piecewise linear threshold model is proposed to predict short-term carry trade returns; it outperforms a variety of benchmarks (including the random walk) on almost all metrics. Robustness tests suggest that this performance does not depend on certain model settings or the sample period (i.e. data mining); instead, a rollingly updated model would lead to even better results.

Why does on‐farm storage fail to mitigate price volatility?

AbstractWe analyze the role of farm stock management on price volatility under liquidity constraints and heterogeneous price expectations. In commodity markets, speculative behaviors by stockholders tend to reduce price volatility, but this is not the case in certain agricultural markets, where speculation by farmers regarding decisions to sell or store grain is subject to liquidity constraints and heterogeneous price expectations. Like stockholders, most farmers sell grain if they expect a price drop in the near future, but unlike stockholders, they are not necessarily able to purchase grain if they expect a price increase in the next period. Heterogeneous price expectations can also lead to suboptimal storage decisions, further increasing price volatility. For these reasons, the storage management behavior of farmers often fails to mitigate price drops in the way that speculation by stockholders does. We merge historical data on maize prices and household storage collected in Burkina Faso in order to build a dynamic panel over the 2005–2012 period. We show that carryover from one season to the next is associated with unexpected price drops during the preceding lean season and that carryover is associated with more frequent unexpected price drops following the subsequent post‐harvest season.

Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets

One possible determinant of overpricing on asset markets is a lack of self-control abilities of traders. Self-control is the individual capacity to override or inhibit undesired behavioral tendencies such as impulses and to refrain from acting on them. We implement the first experiment that is able to address a potential causal relationship between self-control abilities and systematic overpricing on financial markets by introducing an exogenous variation of self-control abilities. Our experimental conditions seek to detect some of the channels through which individual self-control problems could transmit into irrational exuberance on the aggregate level. We observe a strong effect of inhibited self-control abilities on market overpricing. Our findings are furthermore robust to reducing self-control abilities only for a moderate share of traders in a market. Low self-control traders engage in more speculative behavior early on, but because others imitate their trading patterns, they do not end up earning less and are not driven out of the market.

Speculation Under Unawareness

“No trade” theorems establish that, in various trading environments, investors who share a common prior will not engage in speculation, as long as expected utility, Bayesian updating and full awareness are imposed. We relax the last assumption by allowing for asymmetric unawareness and examine under which conditions speculative behavior emerges. We find that if common knowledge is assumed (as in the settings of Aumann [1976] and Milgrom and Stokey [1982]), unawareness cannot generate speculation. This is not true, however, in settings where no common knowledge is assumed, such as speculation in equilibrium (Geanakoplos [1989]) and betting that is always beneficial (Morris [1994]), unless stronger conditions on awareness are imposed.

Is There a Housing Bubble in China?

There is a growing concern in recent years over the potential formation of bubbles in the Chinese real estate market. This paper aims to conduct a series of bubble diagnostic analysis over nine representative Chinese cities from two aspects. First, we investigate whether the prices had been significantly deviating from economic fundamentals by applying a standard Engle-Granger cointegration test. Second, we apply the Log-Periodic-Power-Law-Singularity (LPPLS) model to detect whether there is any evidence of unsustainable, self-reinforcing speculative behaviours amongst the price series. We propose that, given the heterogeneity that exists amongst cities with different types of bubble signatures, it is vital to conduct bubble diagnostic tests and implement relevant policies toward specific bubble characteristics, rather than enforcing one-that-fits-for-all type policy that does not take into account such heterogeneity.

From Keynes Back to Smith and Aristotle: Liquidity Preference, Hoarding, and Speculation

Aristotle, basing his work on Plato (Socrates), was the first to clearly, explicitly and technically identify how an economy at the macro level could fail. There were four possible ways of analyzing the impact of exchange, one without money and three with money. Aristotle’s literary discussion and analysis can be summarized by these four equations-C-C’ (Barter-no money used), C-M-C’ (medium of exchange function of money - using money to assist and expedite the production of consumer and producer goods), M-C-M’ (commodity speculation-real estate and stock bubbles), and M-M’ (usury; hoarding; accumulation of money; using money to make money without any production of consumer and producer goods). Problems are generated at the macro level if speculative and rentier behavior comes to dominant economic behavior, which is aimed at using money to facilitate the production of consumer and producer goods at the micro level. Keynes recognized where Aristotle’s analysis led to. It led to Keynes’s theory of liquidity preference (propensity to hoard) explanation of the rate of interest. Basically, Keynes’s IS equation is a development of Aristotle’s C-M-C’ function, where money is used to facilitate the production of consumer and producer goods. Keynes’s liquidity preference function, LP(LM), is a development of Aristotle’s M-C-M’ and M-M’ equations. Of course, Smith had gotten to the core of Aristotle’s theory of money and the consequent economic problems that resulted from its misuse with his distinction between the sober people and the Projectors, Imprudent Risk takers and Prodigals. The Sober people used money as in C-M-C’ while the Projectors, Imprudent Risk takers and Prodigals used money as described by the M-C-M’ and M-M’ equations. Thus, Smith developed Aristotle’s theory while Keynes developed Smith’s theory. Keynes’s speculators and rentiers are Smith’s Projectors, Imprudent Risk takers and Prodigals, which are Aristotle’s users of money explained by the M-C-M’ and M-M’ equations. Smithian and Keynesian economics are best understood as technical developments of Aristotle’s development of Plato (Socrates). Aristotle, Smith and Keynes all linked the macroscopic problems of deflation and inflation, resulting primarily from a constant and repeated series of bubbles, to the behavior of Projectors, Imprudent Risk takers and Prodigals, who had obtained the aid of the private banking system. The problem will continue to repeat indefinitely until the Central Bank is retaken by representatives of the Sober people and the banking policies of 1934-1978 reinstituted with stronger firewalls incorporated to prevent the central bank from ever being captured again by Wall Street, which represents the modern version of Smith’s Projectors, Imprudent Risk takers and Prodigals.