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

Te Bao, Cars Hommes and Tomasz Makarewicz

Economic Journal, 2017, vol. 127, issue 605, F581-F609

Abstract: 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.

Date: 2017
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https://doi.org/10.1111/ecoj.12341

Related works:
Working Paper: Bubble Formation and (In)Efficient Markets in Learning-to-Forecast and -optimise Experiments (2015)
Working Paper: Bubble Formation and (In)efficient Markets in Learning-to-Forecast and -Optimize Experiments (2014)
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