Experience Does not Eliminate Bubbles: Experimental Evidence

The Review of Financial Studies, forthcoming.

69 Pages Posted: 19 Nov 2018 Last revised: 12 Jan 2021

See all articles by Anita Kopányi-Peuker

Anita Kopányi-Peuker

Radboud University Nijmegen - Department of Economics

Matthias Weber

University of St. Gallen - School of Finance

Date Written: October 16, 2020

Abstract

We study the role of investor experience in the formation of asset price bubbles. We conduct a call market experiment in which participants trade assets with each other and a learning-to-forecast experiment in which participants only forecast future prices (while trade based on these forecasts is computerized). Each experiment comprises three treatments varying the information that participants receive about the fundamental value. Each experimental market is repeated three times. Throughout, we observe sizable bubbles that persist despite participant experience. Our findings in the call market experiment contrast with those in the literature. Our findings in the learning-to-forecast experiment are novel.

Keywords: experimental finance, asset market experiment, level-k reasoning, bubbles, experience

JEL Classification: G40, C92, D53, D90

Suggested Citation

Kopányi-Peuker, Anita and Weber, Matthias, Experience Does not Eliminate Bubbles: Experimental Evidence (October 16, 2020). The Review of Financial Studies, forthcoming., Available at SSRN: https://ssrn.com/abstract=3287168 or http://dx.doi.org/10.2139/ssrn.3287168

Anita Kopányi-Peuker (Contact Author)

Radboud University Nijmegen - Department of Economics ( email )

Nijmegen, 6500 HK
Netherlands

Matthias Weber

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

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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