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Bubbling with Excitement: An Experiment

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  • Eduardo B. Andrade
  • Terrance Odean
  • Shengle Lin

Abstract

Anecdotal and indirect empirical evidence suggest that excitement and market bubbles are intertwined, such that excitement not only arises during bubbles but may also help fuel them. We directly test the impact of excitement on bubbles in a bubble-prone experimental asset-pricing market (Capinalp, Porter, and Smith, 2001). Prior to trading, participants are assigned to emotion inductions through video clips The results of fifty-five markets show larger asset pricing bubbles in magnitude and amplitude in the excitement treatment relative to a treatment of same valence and lower intensity (calm) and a treatment of similar intensity and opposite valence (fear).

Suggested Citation

  • Eduardo B. Andrade & Terrance Odean & Shengle Lin, 2016. "Bubbling with Excitement: An Experiment," Review of Finance, European Finance Association, vol. 20(2), pages 447-466.
    • Handle: RePEc:oup:revfin:v:20:y:2016:i:2:p:447-466.
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    References listed on IDEAS

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    1. Matthias Sutter & Jürgen Huber & Michael Kirchler, 2012. "Bubbles and Information: An Experiment," Management Science, INFORMS, vol. 58(2), pages 384-393, February.
    2. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2018. "Time varying risk aversion," Journal of Financial Economics, Elsevier, vol. 128(3), pages 403-421.
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