Emotions and Chat in a Financial Markets Experiment

30 Pages Posted: 13 Mar 2011

See all articles by Shaun P. Hargreaves Heap

Shaun P. Hargreaves Heap

University of East Anglia (UEA) - School of Economic and Social Studies

Daniel John Zizzo

University of Queensland - School of Economics

Date Written: 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.

Keywords: asset bubbles, cheap talk, emotions, noise traders, behavioral finance

JEL Classification: C91, G12

Suggested Citation

Hargreaves Heap, Shaun and Zizzo, Daniel John, Emotions and Chat in a Financial Markets Experiment (March 11, 2011). Available at SSRN: https://ssrn.com/abstract=1783462 or http://dx.doi.org/10.2139/ssrn.1783462

Shaun Hargreaves Heap

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom
+44 (0)1603 593417 (Phone)

HOME PAGE: http://www.uea.ac.uk/soc/econ/people/hargreavesheap_s.shtml

Daniel John Zizzo (Contact Author)

University of Queensland - School of Economics ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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