Countercyclical risk aversion and self-reinforcing feedback loops in experimental asset markets
Anthony Newell and
Lionel Page ()
No 50, QuBE Working Papers from QUT Business School
We design an asset market experiment in which participants are primed in a boom or bust market condition before trading. We find that pricing bubbles are significantly reduced in the markets in the bust priming condition and that mispricing of assets is larger in the boom condition. We also find that participants exhibit weaker predictive ability in the boom priming condition compared to the bust priming condition. These findings lend weight to the idea that traders’ risk attitude are time varying and that market dynamics may affect these risk attitudes, creating the possibility of feedback loops on market conditions themselves.
Keywords: Behavioural finance; countercyclical risk aversion; time-varying risk aversion; feedback loops; financial bubbles. (search for similar items in EconPapers)
JEL-codes: C91 C92 D81 G10 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-ore and nep-upt
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