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

Christoph Huber

WU Vienna University of Economics and Business

Juergen Huber

University of Innsbruck

Michael Kirchler

University of Innsbruck

Florian Lindner

affiliation not provided to SSRN

Julia Elisabeth Rose

Erasmus University

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

Christoph Huber

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1, Building D1, 3rd Floor
Vienna, 1020
Austria

Juergen Huber

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Michael Kirchler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Florian Lindner

affiliation not provided to SSRN

Julia Elisabeth Rose

Erasmus University ( email )

Netherlands

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