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Bubbles and Financial Professionals

Utz Weitzel, Christoph Huber (), Jürgen Weitzel, Michael Kirchler, Florian Lindner and Julia Rose ()
Additional contact information
Jürgen Weitzel: University of Innsbruck, Department of Banking & and Finance
Michael Kirchler: University of Innsbruck, Department of Banking and Finance
Florian Lindner: Max Planck Institute for Research on Collective Goods, Bonn

No 2018_09, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: The efficiency of financial markets, but also their potential to produce bubbles are central topics in academic and professional debates. Yet, little is known about the contribution of financial professionals to price efficiency. We run 116 experimental markets with 412 professionals and 502 students. We find that professional markets with bubble-drivers – capital inflows or high initial capital supply – are susceptible to bubbles, although they are more efficient than student markets. In mixed markets with students, bubbles also occur, but professionals act as price stabilizers. We show that heterogeneous price beliefs drive overpricing, especially in bubble-prone market environments.

Keywords: Experimental finance; financial professionals; price efficiency; financial bubbles (search for similar items in EconPapers)
JEL-codes: C92 D84 G02 G14 (search for similar items in EconPapers)
Date: 2018-06, Revised 2019-03
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (2) Track citations by RSS feed

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