Can successful forecasters help stabilize asset prices in a learning to forecast experiment?

Dávid Kopányi, Jean Paul Rabanal (), Olga Rud () and Jan Tuinstra

No 140, Working Papers from Peruvian Economic Association

Abstract: We conduct a Learning to Forecast asset pricing experiment where the market impact of individual forecasts evolves endogenously based on the forecasters’ past accuracy. We investigate how endogenous impacts affect price stability and mispricing relative to the fundamental price. Our results suggest that endogenous impacts can destabilize markets when impacts are quite sensitive to forecast accuracy: Price dispersion increases compared to the baseline treatment where impacts are constant and independent of forecast accuracy. On the other hand, mispricing can be reduced when markets are relatively stable and impacts are moderately sensitive to forecast accuracy.

Keywords: Experimental finance; market impact; expectation formation; asset pricing; learning to forecast (search for similar items in EconPapers)
JEL-codes: C91 C92 D53 D84 G12 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (3)

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