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

Cars Hommes (), Anita Kopányi-Peuker and Joep Sonnemans ()

Experimental Economics, 2021, vol. 24, issue 2, No 3, 414-433

Abstract: Abstract 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 are robust in large groups, (ii) information contagion through news affects behaviour and may break the coordination on a bubble, (iii) time varying heterogeneity provides an explanation of bubble formation and crashes, and (iv) bubbles are strongly amplified by coordination on trend-extrapolation.

Keywords: Experimental finance; Expectation formation; Learning to forecast; Financial bubbles (search for similar items in EconPapers)
JEL-codes: C91 C92 D53 D83 D84 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10683-020-09664-w

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