EconPapers    
Economics at your fingertips  
 

Asset Price Volatility and Investment Horizons: An Experimental Investigation

Mikhail Anufriev (), Aleksei Chernulich () and Jan Tuinstra ()
Additional contact information
Jan Tuinstra: Division of Social Science

No 20200053, Working Papers from New York University Abu Dhabi, Department of Social Science

Abstract: We study the effects of the investment horizon on asset price volatility using a Learning to Forecast experiment. We find that, for short investment horizons, participants coordinate on self-fulfilling trend extrapolating predictions. Price deviations are then reinforced and amplified, possibly leading to large bubbles and crashes in asset prices. For longer investment horizons such bubbles do not emerge and price volatility tends to be lower. This is due to the fact that, for longer horizons, there is more dispersion in participants' forecasts, and participants extrapolate trends in past prices to a lesser extent. We also show that, independent of the investment horizon, if the initial history of asset prices is already relatively stable before participants start their prediction task, price volatility remains small, with prices close to their fundamental values for the duration of the experiment.

Pages: 52 pages
Date: 2020-08, Revised 2020-08
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://nyuad.nyu.edu/content/dam/nyuad/academics/ ... papers/2020/0053.pdf First version, 2020 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nad:wpaper:20200053

Access Statistics for this paper

More papers in Working Papers from New York University Abu Dhabi, Department of Social Science Contact information at EDIRC.
Bibliographic data for series maintained by Alizeh Batra ( this e-mail address is bad, please contact ).

 
Page updated 2020-10-03
Handle: RePEc:nad:wpaper:20200053