Bubbles and Crashes in Experimental Asset Markets

Palan, Stefan

doi:10.1007/978-3-642-02147-3

Cited by 23 publications

(25 citation statements)

References 110 publications

(288 reference statements)

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“…Note that a general analysis of volatility requires controlling for the underlying fundamental value of the asset in each experimental period of each experimental session. To that end, we use the dispersion ratio measure proposed by Palan (2009). The dispersion ratio in period t is defined as the sample ratio of asset prices in period t divided by population standard deviation of the expected value of dividends of the asset in the same period.…”

Section: Resultsmentioning

confidence: 99%

Reaction to Public Information in Markets: How much does Ambiguity Matter?

Corgnet

Kujal

Porter

2012

The Economic Journal

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In this article, we experimentally study trader reaction to ambiguity when dividend information is revealed sequentially. Our results indicate that the role of ambiguity aversion in explaining financial anomalies is limited. Specifically, price changes are consistent with news revelation regarding the dividend, independent of subject experience and the degree of ambiguity. In addition, there is no under or overprice reactions to news. Regardless of experience, market reaction to news moves in line with fundamentals. We find no significant differences in the control versus ambiguity treatments regarding prices, price volatility and trading volume for experienced subjects.

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Section: Resultsmentioning

confidence: 99%

Reaction to Public Information in Markets: How much does Ambiguity Matter?

Corgnet

Kujal

Porter

2012

The Economic Journal

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“…Average Dispersion (Palan 2009) measures the average absolute discrepancy between the (median) transaction price in a period and intrinsic value.…”

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confidence: 99%

“…Overpriced Transactions (Palan 2009) is the percentage of all transactions that occur at prices in excess of the maximum remaining dividend value of a share. It is defined as: A measure of Total Dispersion was introduced by Haruvy and Noussair (2006).…”

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confidence: 99%

“…It is defined as: A measure of Total Dispersion was introduced by Haruvy and Noussair (2006). We follow Palan (2009) in normalizing for the number of trading periods.…”

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confidence: 99%

“…Finally, for double-auction markets only, we report the Dispersion Ratio (Palan 2009). This is a measure of price volatility designed to normalize for differences in the level and change over time in the variability of the outstanding dividend stream on a share.…”

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confidence: 99%

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Two heads are less bubbly than one: team decision-making in an experimental asset market

Cheung

Palan

2011

Exp Econ

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Abstract:In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decisionmaking in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decisionmaking unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the 'narrow' baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind. Keywords: group decision-making, price bubbles, asset market experiments.JEL codes: C92, D70, G12. and firms as though they were made by unitary decision-makers. In this paper we examine the effect of team decision-making upon the propensity for asset markets to bubble and crash. We make this comparison in the setting of an experiment, in which the intrinsic value of the asset that is bought and sold -as well as other features such as the size of the decision-making unit -is under the control of the experimenter. Our experiments thus isolate the effect of team decision-making, holding other features of the market environment constant.Our paper sets out to make two distinct contributions. Firstly, we contribute to experimental research on teams by reporting, to the best of our knowledge, the first study to compare the behavior of individuals and teams in a fully-fledged double-sided market environment. We make this comparison using both a continuous double-auction institution and a call market institution, in the setting of a market for a long-lived asset. Secondly, whereas almost all existing research on asset market experiments has examined the robustness of bubbles and crashes to institutional features of the market environment, our focus in this paper is on the characteristics of the traders themselves, in particular the effect of populating a market with teams of size two instead of individuals. Across a broad range of measures of the severity of mispricing, we find strong support for the proposition that team decision-making results in substantially smaller price bubbles when compared to baseline markets populated by individuals drawn from the same subject pool and using the same procedures. This is the case in both our double-auction and call market treatments. This is also the case when we compare our teams markets to a broader database of results from previous research on markets ...

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A Review of Bubbles and Crashes in Experimental Asset Markets

Palan¹

2013

A Collection of Surveys on Market Experiments

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Bubbles and Crashes in Experimental Asset Markets

Cited by 23 publications

References 110 publications

Reaction to Public Information in Markets: How much does Ambiguity Matter?

Reaction to Public Information in Markets: How much does Ambiguity Matter?

Two heads are less bubbly than one: team decision-making in an experimental asset market

A Review of Bubbles and Crashes in Experimental Asset Markets

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