Emotions and chat in a financial markets experiment

Shaun Hargreaves Heap and Daniel Zizzo

No 11-11, Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) from School of Economics, University of East Anglia, Norwich, UK.

Abstract: This paper examines experimentally two common conjectures in the popular literature on financial markets: that they are swayed by emotion and that they behave like a 'crowd'. We find consistent evidence that deviations of prices from fundamental value depend on the emotion of excitement and on the presence of independently identified 'irrational' traders. Other than through 'irrational' traders, there is no evidence, however, that non-price communication ('chat') influences prices. Subjects with an economics background make better traders.

Keywords: Asset bubbles; cheap talk; emotions; noise traders; behavioral finance (search for similar items in EconPapers)
JEL-codes: C91 G12 (search for similar items in EconPapers)
Date: 2011-03-01
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Citations: View citations in EconPapers (22)

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Working Paper: Emotions and Chat in a Financial Markets Experiment (2011)
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