Does risk sorting explain bubbles?

Hubert Janos Kiss, László Kóczy (), Ágnes Pintér and Balázs Sziklai

No 1905, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: A recent stream of experimental economics literature studies the factors that contribute to the emergence of financial bubbles. We consider a setting where participants sorted according to their degree of risk aversion trade in experimental asset markets. We show that risk sorting is able to explain bubbles partially: Markets with the most risk-tolerant traders exhibit larger bubbles than markets with the most risk averse traders. In our study risk aversion does not correlate with gender or cognitive abilities, so it is an additional factor that helps understand bubbles.

Keywords: experiment; risk sorting; asset bubble (search for similar items in EconPapers)
JEL-codes: C91 G12 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2019-02
New Economics Papers: this item is included in nep-exp and nep-upt
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