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Bubbles and Financial Professionals

Author

Listed:
  • Utz Weitzel

    (Utrecht University School of Economics)

  • Christoph Huber

    (University of Innsbruck, Department of Banking & and Finance)

  • Jürgen Huber

    (University of Innsbruck, Department of Banking & and Finance)

  • Michael Kirchler

    (University of Innsbruck, Department of Banking and Finance)

  • Florian Lindner

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Julia Rose

    (University of Innsbruck, Department of Banking & and Finance)

Abstract

The efficiency of financial markets, but also their potential to produce bubbles are central topics in academic and professional debates. Yet, little is known about the contribution of financial professionals to price efficiency. We run 116 experimental markets with 412 professionals and 502 students. We find that professional markets with bubble-drivers – capital inflows or high initial capital supply – are susceptible to bubbles, although they are more efficient than student markets. In mixed markets with students, bubbles also occur, but professionals act as price stabilizers. We show that heterogeneous price beliefs drive overpricing, especially in bubble-prone market environments.

Suggested Citation

  • Utz Weitzel & Christoph Huber & Jürgen Huber & Michael Kirchler & Florian Lindner & Julia Rose, 2018. "Bubbles and Financial Professionals," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2018_09, Max Planck Institute for Research on Collective Goods, revised Mar 2019.
  • Handle: RePEc:mpg:wpaper:2018_09
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    • Utz Weitzel & Christoph Huber & Florian Lindner & Jürgen Huber & Julia Rose & Michael Kirchler, 2018. "Bubbles and financial professionals," Working Papers 2018-04, Faculty of Economics and Statistics, University of Innsbruck, revised Oct 2018.

    References listed on IDEAS

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    More about this item

    Keywords

    Experimental finance; financial professionals; price efficiency; financial bubbles;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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