Informational contagion in the laboratory
Marco Cipriani (),
Antonio Guarino (),
Federico Tagliati () and
No 715, Staff Reports from Federal Reserve Bank of New York
We study the informational channel of financial contagion in the laboratory. In our experiment, two markets with correlated fundamentals open sequentially. In both markets, 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. As a result, we observe financial contagion in the laboratory: Indeed, the correlation between asset prices is very close to that predicted by the theory. Finally, as theory predicts, there is no contagion when asset fundamentals are independent: That is, 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: information contagion; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C92 G01 G14 G15 (search for similar items in EconPapers)
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Journal Article: Informational Contagion in the Laboratory (2018)
Working Paper: Informational contagion in the laboratory (2016)
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