Experience Does not Eliminate Bubbles: Experimental Evidence

52 Pages Posted: 19 Nov 2018 Last revised: 23 Jul 2019

See all articles by Anita Kopányi-Peuker

Anita Kopányi-Peuker

University of Amsterdam - Faculty of Economics and Business (FEB)

Matthias Weber

University of St. Gallen - School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 27, 2019

Abstract

We study the role of experience in the formation of asset price bubbles. Therefore, we conduct two related experiments. One is a call market experiment in which participants trade assets with each other. The other is a learning-to-forecast experiment in which participants only forecast future prices, while the trade, which is based on these forecasts, is computerized. Each experiment comprises three treatments varying the amount of information that participants receive about the fundamental value. Each market is repeated three times. In both experiments and in all treatments, we observe sizable bubbles. These bubbles do not disappear with experience. Our findings in the call market experiment stand in contrast to the literature. Our findings in the learning-to-forecast experiment are novel. Interestingly, we observe flat bubbles in the call market experiment and boom-and-bust cycles in the learning-to-forecast experiment.

Keywords: experimental finance, asset market experiment, asset pricing, behavioral finance, bubbles, experience

JEL Classification: G40, C92, D53, D90

Suggested Citation

Kopányi-Peuker, Anita and Weber, Matthias, Experience Does not Eliminate Bubbles: Experimental Evidence (June 27, 2019). University of St.Gallen, School of Finance Research Paper No. 2018/22. Available at SSRN: https://ssrn.com/abstract=3287168 or http://dx.doi.org/10.2139/ssrn.3287168

Anita Kopányi-Peuker (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Matthias Weber

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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