Bubbles and Financial Professionals

The Review of Financial Studies, Forthcoming

120 Pages Posted: 16 Mar 2018 Last revised: 21 Oct 2019

See all articles by Utz Weitzel

Utz Weitzel

VU University Amsterdam; Tinbergen Institute; Radboud University

Christoph Huber

University of Innsbruck

Juergen Huber

University of Innsbruck; University of Vienna - Department of Finance

Michael Kirchler

University of Innsbruck

Florian Lindner

Max Planck Institute for Research on Collective Goods

Julia Elisabeth Rose

Burgundy School of Business

Date Written: March 14, 2019

Abstract

The efficiency of financial markets, but also their potential to produce bubbles are central topics in academic and professional debates. Yet, little is known about the contribution of financial professionals to price efficiency. We run 116 experimental markets with 412 professionals and 502 students. We find that professional markets with bubble-drivers - capital inflows or high initial capital supply - are susceptible to bubbles, although they are more efficient than student markets. In mixed markets with students, bubbles also occur, but professionals act as price stabilizers. We show that heterogeneous price beliefs drive overpricing, especially in bubble-prone market environments.

Keywords: Experimental finance, financial professionals, price efficiency, financial bubbles

JEL Classification: C92, D84, G02, G14

Suggested Citation

Weitzel, Utz and Huber, Christoph and Huber, Juergen and Kirchler, Michael and Lindner, Florian and Rose, Julia Elisabeth, Bubbles and Financial Professionals (March 14, 2019). The Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3139856 or http://dx.doi.org/10.2139/ssrn.3139856

Utz Weitzel (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Radboud University ( email )

Heyendaalseweg 141
Nijmegen, 6525 AJ
Netherlands

Christoph Huber

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Juergen Huber

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

University of Vienna - Department of Finance ( email )

Bruenner Strasse 72
Vienna, 1210
Austria

Michael Kirchler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Florian Lindner

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

HOME PAGE: http://https://sites.google.com/site/florianlindner85/

Julia Elisabeth Rose

Burgundy School of Business ( email )

29 Rue Sambin
Dijon, 21000
France

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