Emotions and Chat in a Financial Markets Experiment
AbstractThis 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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Bibliographic InfoPaper provided by The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney in its series Working Paper Series with number 10.
Length: 30 pages
Date of creation: 01 Mar 2011
Date of revision:
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asset bubbles; cheap talk; emotions; noise traders; behavioral finance.;
Other versions of this item:
- Shaun Hargreaves Heap & Daniel John Zizzo, 2011. "Emotions and chat in a financial markets experiment," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 11-11, School of Economics, University of East Anglia, Norwich, UK..
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-02 (All new papers)
- NEP-CBE-2011-04-02 (Cognitive & Behavioural Economics)
- NEP-EXP-2011-04-02 (Experimental Economics)
- NEP-HPE-2011-04-02 (History & Philosophy of Economics)
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