Does Risk Sorting Explain Bubbles?

54 Pages Posted: 11 Mar 2019

See all articles by Hubert Janos Kiss

Hubert Janos Kiss

Eötvös Loránd University; Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS)

Laszlo A. Koczy

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS); Quantitative Social and Management Sciences Research Group, Budapest University of Technology and Economics

Ágnes Pintér

Universidad Autónoma de Madrid

Balazs Sziklai

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS); Corvinus University of Budapest

Date Written: February 20, 2019

Abstract

A recent stream of experimental economics literature studies the factors that contribute to the emergence of financial bubbles. We consider a setting where participants sorted according to their degree of risk aversion trade in experimental asset markets. We show that risk sorting is able to explain bubbles partially: Markets with the most risk-tolerant traders exhibit larger bubbles than markets with the most risk averse traders. In our study risk aversion does not correlate with gender or cognitive abilities, so it is an additional factor that helps understand bubbles.

Keywords: Experiment, Risk Sorting, Asset Bubble

JEL Classification: C91, G12

Suggested Citation

Kiss, Hubert Janos and Koczy, Laszlo A. and Pintér, Ágnes and Sziklai, Balazs, Does Risk Sorting Explain Bubbles? (February 20, 2019). Available at SSRN: https://ssrn.com/abstract=3338344 or http://dx.doi.org/10.2139/ssrn.3338344

Hubert Janos Kiss (Contact Author)

Eötvös Loránd University ( email )

Pazmany Peter setany 1A
Budapest, -- H1117
Hungary

Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS) ( email )

Budaorsi ut 45
Budapest, 1112
Hungary

Laszlo A. Koczy

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS) ( email )

Budaörsi 45
Budapest, H-1112
Hungary

HOME PAGE: http://www.mtakti.hu/en/kutatok/laszlo-a-koczy/276/

Quantitative Social and Management Sciences Research Group, Budapest University of Technology and Economics ( email )

Magyar Tudósok krt. 2.
Budapest, 1117
Hungary

HOME PAGE: http://qsms.mokk.bme.hu/index.php/koczy/

Ágnes Pintér

Universidad Autónoma de Madrid

Campus Cantoblanco
C/Kelsen, 1
Madrid, Madrid 28049
Spain

Balazs Sziklai

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS) ( email )

Papnovelde u. 22
Budapest, H-1112
Hungary

HOME PAGE: http://econ.core.hu/english/inst/sziklai.html

Corvinus University of Budapest

Hungary

HOME PAGE: http://web.uni-corvinus.hu/~bszikla/

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