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Does risk sorting explain bubbles?

Author

Listed:
  • Hubert J. Kiss

    (Centre for Economic and Regional Studies Hungarian Academy of Sciences and Department of Economics, Eötvös Loránd University)

  • Laszlo A. Koczy

    (Centre for Economic and Regional Studies Hungarian Academy of Sciences, and Faculty of Economic and Social Sciences, Budapest University of Technology and Economics)

  • Agnes Pinter

    (Department of Economic Analysis, Universidad Autónoma de Madrid)

  • Balazs R. Sziklai

    (Centre for Economic and Regional Studies Hungarian Academy of Sciences, and Faculty of Economics, Corvinus University Budapest)

Abstract

A recent stream of experimental economics literature studies the factors that contribute to the emergence of financial bubbles. We consider a setting where participants sorted according to their degree of risk aversion trade in experimental asset markets. We show that risk sorting is able to explain bubbles partially: Markets with the most risk-tolerant traders exhibit larger bubbles than markets with the most risk averse traders. In our study risk aversion does not correlate with gender or cognitive abilities, so it is an additional factor that helps understand bubbles.

Suggested Citation

  • Hubert J. Kiss & Laszlo A. Koczy & Agnes Pinter & Balazs R. Sziklai, 2019. "Does risk sorting explain bubbles?," CERS-IE WORKING PAPERS 1905, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1905
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    References listed on IDEAS

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    More about this item

    Keywords

    experiment; risk sorting; asset bubble;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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