Bubble Formation and (In)Efficient Markets in Learning-to-Forecast and -optimise Experiments

Te Bao, Cars Hommes and Tomasz Makarewicz

No 15-107/II, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects (1) submit a price forecast only, (2) choose quantity to buy/sell and (3) perform both tasks. We find deviation of the market price from the fundamental price in all treatments, but to a larger degree in treatments (2) and (3). Mispricing is therefore a robust finding in markets with positive expectation feedback. Some very large, recurring bubbles arise, where the price is 3 times larger than the fundamental value, which were not seen in former experiments.

Keywords: Financial Bubbles; Experimental Finance; Rational Expectations; Learning to Forecast; Learning to Optimize (search for similar items in EconPapers)
JEL-codes: C91 C92 D53 D83 D84 (search for similar items in EconPapers)
Date: 2015-09-04
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Bubble Formation and (In)Efficient Markets in Learning‐to‐forecast and optimise Experiments (2017)
Working Paper: Bubble Formation and (In)efficient Markets in Learning-to-Forecast and -Optimize Experiments (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20150107

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