Template-Type:  ReDIF-Paper 1.0
Series:  Tinbergen Institute Discussion Papers
Creation-Date: 02/20/2019
Number: 19-016/II
Author-Name: Cars Hommes
Author-Workplace-Name: University of Amsterdam
Author-Name: Anita Kopányi-Peuker
Author-Workplace-Name: University of Amsterdam
Author-Name: Joep Sonnemans
Author-Workplace-Name: University of Amsterdam
Title: Bubbles, crashes and information contagion in large-group asset market experiments
Abstract: We study the emergence of bubbles in a laboratory experiment with large groups of individuals. The realized price is the aggregation of the forecasts of a group of individuals, with positive expectations feedback through speculative demand. When prices deviate from fundamental value, a random selection of participants receives news about overvaluation. Our findings are: (i) large asset bubbles occur in large groups, (ii) information contagion through news affects behaviour and may break the coordination on a bubble, (iii) time varying heterogeneity provides an accurate explanation of bubble formation and crashes, and (iv) bubbles are strongly amplified by coordination on trend-extrapolation.
Classification-JEL: C91, C92,D53,D83,D84
Keywords: Experimental finance, expectation formation, learning to forecast, financial bubbles
File-Url: https://papers.tinbergen.nl/19016.pdf
File-Format:  application/pdf
File-Size: 1669280 bytes
Handle:  RePEc:tin:wpaper:20190016