Bubble Formation and (In)efficient Markets in Learning-to-Forecast and -Optimize Experiments

Te Bao, C.H. Hommes () and Tomasz Makarewicz
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C.H. Hommes: University of Amsterdam

No 14-01, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

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 that bubbles emerge in all these treatments, but to a larger degree in treatment (2) and (3). Our result confirms that bubble formation is a robust finding in markets with positive expectation feedback. We also find some repeated ``super bubbles'' where the price is 3 times larger than the fundamental value, which were not seen in former experiments.

Date: 2014
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Bubble Formation and (In)Efficient Markets in Learning‐to‐forecast and optimise Experiments (2017)
Working Paper: Bubble Formation and (In)Efficient Markets in Learning-to-Forecast and -optimise Experiments (2015)
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