Experience Does not Eliminate Bubbles: Experimental Evidence

Tinbergen Institute Discussion Paper 2018-092/II

51 Pages Posted: 12 Dec 2018

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: November 15, 2018

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 that vary the amount of information about the fundamental value that participants receive. 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, the shape of the bubbles is different between the two experiments. 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 (November 15, 2018). Tinbergen Institute Discussion Paper 2018-092/II. Available at SSRN: https://ssrn.com/abstract=3287926 or http://dx.doi.org/10.2139/ssrn.3287926

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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