Informational contagion in the laboratory

Marco Cipriani, Antonio Guarino, Giovanni Guazzarotti, Federico Tagliati and Sven Fischer ()
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Sven Fischer: Max Planck Institute for Research on Collective Goods

No 1063, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We study the informational channel of financial contagion under laboratory conditions. In our experiment, two markets with correlated fundamentals open sequentially and in both of them subjects receive private information. Subjects in the market opening second also observe the history of trades and prices in the first market. We find that although in both markets private information is only imperfectly aggregated, subjects are able to make correct inferences based on the public information coming from the market that opens first. We thus observe financial contagion under laboratory conditions: the correlation between asset prices is very close to that predicted by the theory. Moreover, as the theory predicts, there is no contagion when asset fundamentals are independent: in other words, subjects only react to the history of prices and trades in the first market when it is rational to do so because they convey information.

Keywords: informational contagion; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C92 G01 G14 G15 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Informational Contagion in the Laboratory (2018)
Working Paper: Informational contagion in the laboratory (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1063_16

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