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Emotions and Chat in a Financial Markets Experiment

Author Info

  • Shaun P. Hargreaves Heap

    (University of East Anglia)

  • Daniel John Zizzo

    (University of East Anglia)

Abstract

This 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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File URL: http://www.uts.edu.au/sites/default/files/wp10.pdf
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Paper provided by The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney in its series Working Paper Series with number 10.

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Length: 30 pages
Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:uts:pwcwps:10
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Web page: http://www.uts.edu.au/research-and-teaching/our-research/paul-woolley-centre

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Keywords: asset bubbles; cheap talk; emotions; noise traders; behavioral finance.;

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Find related papers by JEL classification:
  • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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Cited by:

  1. Martin G. Kocher & Konstantin E. Lucks & David Schindler, 2016. "Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets," CESifo Working Paper Series 5812, CESifo Group Munich.
  2. Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, 07.
  3. Daniel John Zizzo, 2012. "Inducing natural group identity: A RDP analysis," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 12-01, School of Economics, University of East Anglia, Norwich, UK..

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