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Coordination on bubbles in large-group asset pricing experiments

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posted on 2023-06-09, 23:30 authored by Te Bao, Myrna Hennequin, Cars Hommes, Domenico Massaro
We present a large-group experiment in which participants predict the price of an asset, whose realization depends on the aggregation of individual forecasts. The markets consist of 21 to 32 participants, a group size larger than in most experiments. Multiple large price bubbles occur in six out of seven markets. The bubbles emerge even faster than in smaller markets. Individual forecast errors do not cancel out at the aggregate level, but participants coordinate on a trend-following prediction strategy that gives rise to large bubbles. The observed price patterns can be captured by a behavioral heuristics switching model with heterogeneous expectations.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Economic Dynamics and Control

ISSN

0165-1889

Publisher

Elsevier

Volume

110

Page range

1-29

Article number

a103702

Department affiliated with

  • Economics Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2021-04-08

First Open Access (FOA) Date

2021-05-24

First Compliant Deposit (FCD) Date

2021-04-01

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