Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/205306 
Year of Publication: 
2019
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2019-016/II
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
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.
Subjects: 
Experimental finance
expectation formation
learning to forecast
financial bubbles
JEL: 
C91
C92
D53
D83
D84
Document Type: 
Working Paper

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