Bubble Formation and (In)Efficient Markets in Learning‐to‐Forecast and optimise Experiments

Bibliographic Data

ID9712184
AuthorsTe Bao (0000-0001-6397-9365, Nanyang Technological University and University of Groningen), Cars Hommes (0000-0002-2260-2665, University of Amsterdam and Tinbergen Institute), Tomasz Makarewicz (0000-0002-6107-8667, University of Amsterdam and Tinbergen Institute)
Year2017
Volume127
Issue605
PagesF581-F609
Publication date2017-10-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12341
OpenAlexW2107774911
LanguageEN
Citations received1
References cited38

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 three times larger than the fundamental value, which were not seen in former experiments

Asset (computer security · Bubble · Econometrics · Economic bubble · Economics · Financial economics · Market price · Microeconomics · Monetary economics · Price formation · Statistics · Value (mathematics · Computer Science · Economic theories and models · Experimental Behavioral Economics Studies · Financial Markets and Investment Strategies · Mathematics

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