The Role of Communication in Asset Market Experiments

Carol Luengo (), Steven Tucker, Yilong Xu (), Frank Scrimgeour () and Kun Zhang ()
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Carol Luengo: University of Waikato, https://www.waikato.ac.nz/about/faculties-schools/management/
Yilong Xu: Utrecht School of Economics, Utrecht University
Frank Scrimgeour: University of Waikato, https://www.waikato.ac.nz/about/faculties-schools/management/
Kun Zhang: Business School, University of Jinan

Working Papers in Economics from University of Waikato

Abstract: This study investigates the effect of continuous, free-form communication among traders on mispricing in experimental asset markets. We compare three fundamental value regimes: a constant fundamental value without interest, a decreasing fundamental value, and a constant fundamental value generated by dividends and interest on cash. Evidence indicates that the constant fundamental value with interest environment is the one that participants find hardest to understand. Communication's impact is examined by allowing participants to engage in unrestricted text chat during market trading sessions. We hypothesized that the benefits of communication, such as reducing confusion, correcting misconceptions, and promoting common beliefs, would be larger in market environments that traders find harder to understand. We find a marginal reduction in mispricing only in the environment participants found hardest to understand. Overall, communication has, at best, a marginal effect on pricing efficiency, and only in the most demanding of the three environments.

Keywords: communication; experimental asset markets; mispricing (search for similar items in EconPapers)
JEL-codes: C90 C91 G12 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2025-04-25, Revised 2026-09-09
New Economics Papers: this item is included in nep-exp
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