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Only Paul Could Go To Changchun

Bubbles, crashes and information contagion in large-group asset market experiments

4/22/2019

 
Here.

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


From:

Cars Hommes
Anita Kopányi-Peuker
Joep Sonnemans

University of Amsterdam and Tinbergen Institute

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