Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-09-04
Number: 15-107/II
Author-Name: Te Bao
Author-Workplace-Name: University of Groningen, the Netherlands
Author-Name: Cars Hommes
Author-Workplace-Name: University of Amsterdam, the Netherlands
Author-Name: Tomasz Makarewicz
Author-Workplace-Name: University of Amsterdam, the Netherlands
Title: Bubble Formation and (In)Efficient Markets in Learning-to-Forecast and -optimise Experiments
Abstract: This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects (1) submit a price forecast only, (2) choose quantity to buy/sell and (3) perform both tasks. We find deviation of the market price from the fundamental price in all treatments, but to a larger degree in treatments (2) and (3). Mispricing is therefore a robust finding in markets with positive expectation feedback. Some very large, recurring bubbles arise, where the price is 3 times larger than the fundamental value, which were not seen in former experiments.
Classification-JEL: C91, C92, D53, D83, D84
Keywords: Financial Bubbles, Experimental Finance, Rational Expectations, Learning to Forecast, Learning to Optimize
File-Url: https://papers.tinbergen.nl/15107.pdf
File-Format: application/pdf
File-Size: 644054 bytes
Handle: RePEc:tin:wpaper:20150107