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How tournament incentives affect asset markets: A comparison between winner-take-all tournaments and elimination contests

Journal article
Authors Dawei Fang
Martin Holmen
Daniel Kleinlercher
Michael Kirchler
Published in Journal of Economic Dynamics and Control
Volume 75
Pages 1-27
ISSN 0165-1889
Publication year 2017
Published at Centre for Finance
Department of Economics
Pages 1-27
Language en
Keywords Tournament incentives; Investment behavior; Market efficiency; Experimental finance
Subject categories Economics and Business


We investigate the impact of investment managers׳ tournament incentives on investment strategies and market efficiency, distinguishing between winner-take-all tournaments (WTA), where a minority wins, and elimination contests (EC), where a majority wins. Theoretically, we show that investment managers play heterogeneous strategies in WTA and homogeneous strategies in EC, and markets are more prone to mispricing in WTA than in EC. Experimentally, we find that investment managers play more heterogeneous strategies in WTA than in EC, but this does not trigger significant differences in prices. Moreover, prices in WTA and EC do not differ significantly from markets composed of linearly incentivized subjects.

Page Manager: Webmaster|Last update: 9/11/2012

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