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Only Paul Could Go To Changchun

Countercyclical risk aversion and self-reinforcing feedback loops in experimental asset markets 

3/25/2017

 
Here.

We design an asset market experiment in which participants are primed in a boom or bust market condition before trading. We find that pricing bubbles are significantly reduced in the markets in the bust priming condition and that mispricing of assets is larger in the boom condition. We also find that participants exhibit weaker predictive ability in the boom priming condition compared to the bust priming condition. These findings lend weight to the idea that traders’ risk attitude are time varying and that market dynamics may affect these risk attitudes, creating the possibility of feedback loops on market conditions themselves.


From:

Anthony Newell
Lionel Page 

Queensland University of Technology 

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