Emotions and Chat in a Financial Markets Experiment

Shaun Hargreaves Heap and Daniel Zizzo

No 10, Working Paper Series from The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney

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)
Pages: 30 pages
Date: 2011-03-01
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Emotions and chat in a financial markets experiment (2011)
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