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Bubbles, crashes and information contagion in large-group asset market experiments

Author

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  • Cars Hommes

    (University of Amsterdam)

  • Anita Kopányi-Peuker

    (University of Amsterdam)

  • Joep Sonnemans

    (University of Amsterdam)

Abstract

We study the emergence of bubbles in a laboratory experiment with large groups of individuals. The realized price is the aggregation of the forecasts of a group of individuals, with positive expectations feedback through speculative demand. When prices deviate from fundamental value, a random selection of participants receives news about overvaluation. Our findings are: (i) large asset bubbles occur in large groups, (ii) information contagion through news affects behaviour and may break the coordination on a bubble, (iii) time varying heterogeneity provides an accurate explanation of bubble formation and crashes, and (iv) bubbles are strongly amplified by coordination on trend-extrapolation.

Suggested Citation

  • Cars Hommes & Anita Kopányi-Peuker & Joep Sonnemans, "undated". "Bubbles, crashes and information contagion in large-group asset market experiments," Tinbergen Institute Discussion Papers 19-016/II, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20190016
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    References listed on IDEAS

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    Cited by:

    1. Hommes, Cars, 2018. "Behavioral & experimental macroeconomics and policy analysis: a complex systems approach," Working Paper Series 2201, European Central Bank.
    2. Antonio Doria, Francisco, 2011. "J.B. Rosser Jr. , Handbook of Research on Complexity, Edward Elgar, Cheltenham, UK--Northampton, MA, USA (2009) 436 + viii pp., index, ISBN 978 1 84542 089 5 (cased)," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 196-204, April.

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    More about this item

    Keywords

    Experimental finance; expectation formation; learning to forecast; financial bubbles;
    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
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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