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Can successful forecasters help stabilize asset prices in a learning to forecast experiment?

Author

Listed:
  • Dávid Kopányi

    (University of Amsterdam and Tinbergen Institute)

  • Jean Paul Rabanal

    (Monash University)

  • Olga A. Rud

    (University of Melbourne)

  • Jan Tuinstra

    (University of Amsterdam and Tinbergen Institute)

Abstract

We conduct a Learning to Forecast asset pricing experiment where the market impact of individual forecasts evolves endogenously based on the forecasters’ past accuracy. We investigate how endogenous impacts affect price stability and mispricing relative to the fundamental price. Our results suggest that endogenous impacts can destabilize markets when impacts are quite sensitive to forecast accuracy: Price dispersion increases compared to the baseline treatment where impacts are constant and independent of forecast accuracy. On the other hand, mispricing can be reduced when markets are relatively stable and impacts are moderately sensitive to forecast accuracy.

Suggested Citation

  • Dávid Kopányi & Jean Paul Rabanal & Olga A. Rud & Jan Tuinstra, 2019. "Can successful forecasters help stabilize asset prices in a learning to forecast experiment?," Working Papers 140, Peruvian Economic Association.
    • Handle: RePEc:apc:wpaper:140
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Anufriev, Mikhail & Chernulich, Aleksei & Tuinstra, Jan, 2022. "Asset price volatility and investment horizons: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 19-48.
    2. Zafer Akin, 2023. "Asymmetric guessing games," Theory and Decision, Springer, vol. 94(4), pages 637-676, May.
    3. Rholes, Ryan & Petersen, Luba, 2021. "Should central banks communicate uncertainty in their projections?," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 320-341.

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    More about this item

    Keywords

    Experimental finance; market impact; expectation formation; asset pricing; learning to forecast;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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