Anchoring in Experimental Asset Markets

SAFE Working Paper No. 54

33 Pages Posted: 22 Jun 2014 Last revised: 12 Feb 2015

See all articles by Sascha Baghestanian

Sascha Baghestanian

Goethe University; Leibniz Institute for Financial Research SAFE

Todd B. Walker

Indiana University Bloomington - Department of Economics

Date Written: February 10, 2014

Abstract

We investigate the relationship between anchoring and the emergence of bubbles in experimental asset markets. We show that setting a visual anchor at the fundamental value (FV) in the first period only is sufficient to eliminate or to significantly reduce bubbles in laboratory asset markets. If no FV-anchor is set, bubble-crash patterns emerge. Our results indicate that bubbles in laboratory environments are primarily sparked in the first period. If prices are initiated around the FV, they stay close to the FV over the entire trading horizon. Our insights can be related to initial public offerings and the interaction between prices set on pre-opening markets and subsequent intra-day price dynamics.

Keywords: Experimental Asset Markets, Anchoring, Bubbles

JEL Classification: C90, C91, D03, G02, G12

Suggested Citation

Baghestanian, Sascha and Walker, Todd B., Anchoring in Experimental Asset Markets (February 10, 2014). SAFE Working Paper No. 54, Available at SSRN: https://ssrn.com/abstract=2456941 or http://dx.doi.org/10.2139/ssrn.2456941

Sascha Baghestanian (Contact Author)

Goethe University ( email )

Grüneburgplatz 1
D-60323
Frankfurt, Hessen 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Todd B. Walker

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
108
Abstract Views
1,303
rank
274,336
PlumX Metrics