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Emotions and Chat in a Financial Markets ExperimentShaun P. Hargreaves HeapUniversity of East Anglia (UEA) - School of Economic and Social Studies Daniel John ZizzoUniversity of East Anglia - School of Economics and CBESS March 11, 2011 Abstract: This paper examines experimentally two common conjectures in the popular literature on financial markets: that they are swayed by emotion and that they behave like a 'crowd'. We find consistent evidence that deviations of prices from fundamental value depend on the emotion of excitement and on the presence of independently identified 'irrational' traders. Other than through 'irrational' traders, there is no evidence, however, that non-price communication ('chat') influences prices. Subjects with an economics background make better traders.
Number of Pages in PDF File: 30 Keywords: asset bubbles, cheap talk, emotions, noise traders, behavioral finance JEL Classification: C91, G12 working papers seriesDate posted: March 13, 2011Suggested CitationContact Information
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