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Emotions and Chat in a Financial Markets Experiment

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  • Shaun P. Hargreaves Heap

    (University of East Anglia)

  • Daniel John Zizzo

    (University of East Anglia)

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.

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File URL: http://www.uts.edu.au/sites/default/files/wp10.pdf
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Bibliographic Info

Paper provided by The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney in its series Working Paper Series with number 10.

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Length: 30 pages
Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:uts:pwcwps:10

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Keywords: asset bubbles; cheap talk; emotions; noise traders; behavioral finance.;

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Cited by:
  1. Noussair, C.N. & Tucker, S., 2013. "Experimental Research On Asset Pricing," Discussion Paper 2013-020, Tilburg University, Center for Economic Research.
  2. Adriana Breaban & Charles N. Noussair, 2013. "Emotional State and Market Behavior," Working Papers 2013/08, Economics Department, Universitat Jaume I, Castellón (Spain).

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