Before and After: The Impact of a Real Bubble Crash on Investors’ Trading Behavior in the Lab
Journal of Economic Behavior and Organization, Volume 95, November 2013, Pages 186–196.
12 Pages Posted: 10 Jan 2011 Last revised: 14 Nov 2014
Date Written: August 30, 2010
We report the results of an experiment designed to study whether or not having experienced booms and crashes in naturally occurring asset markets affects subjects’ trading behavior in the lab. Active investors in the Shanghai Stock Exchange were recruited to participate in either the Boom treatment, conducted in June 2007 after the Shanghai Stock Exchange had had a bull market for almost 2 years, or the Crash treatment, conducted in August 2008 after the SSE composite index had plummeted almost 60% from its high reached in October 2007. We find that, compared to those in the Crash treatment, subjects in the Boom treatment were much more active when participating in our experimental asset markets in that they tended to made bigger trades and preferred to hold more shares than cash. These behavioral differences cannot be explained by the overconfidence hypothesis.
Keywords: experiment, asset market, experience, bubble
JEL Classification: C91, C93, G01, G11
Suggested Citation: Suggested Citation