We study the role of experience in the formation of asset price bubbles. Therefore, we conduct two related experiments. One is a call market experiment in which participants trade assets with each other. The other is a learning-to-forecast experiment in which participants only forecast future prices, while the trade, which is based on these forecasts, is computerized. Each experiment comprises three treatments that vary the amount of information about the fundamental value that participants receive. Each market is repeated three times. In both experiments and in all treatments, we observe sizable bubbles. These bubbles do not disappear with experience. Our findings in the call market experiment stand in contrast to the literature. Our findings in the learning-to-forecast experiment are novel. Interestingly, the shape of the bubbles is different between the two experiments. We observe flat bubbles in the call market experiment and boom-and-bust cycles in the learning-to-forecast experiment.
# 18-092/II (2018-11-20)
- Anita (A.G.) Kopanyi-Peuker, University of Amsterdam; Matthias Weber, University of St. Gallen, Vilnius University
- Experimental finance; asset market experiment; asset pricing; behavioral finance; bubbles; experience.
- JEL codes:
- G40, C92, D53, D90