Bubbles and Financial Professionals

Utz Weitzel, Christoph Huber, Jürgen Huber, Michael Kirchler, Florian Lindner, Julia Rose

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

The efficiency of financial markets and 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.
Original languageEnglish
JournalReview of Financial Studies
Publication statusE-pub ahead of print - 2019

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Bubble
Experimental markets
Price efficiency
Market environment
Capital inflows
Financial markets

Cite this

Weitzel, U., Huber, C., Huber, J., Kirchler, M., Lindner, F., & Rose, J. (2019). Bubbles and Financial Professionals. Review of Financial Studies.
Weitzel, Utz ; Huber, Christoph ; Huber, Jürgen ; Kirchler, Michael ; Lindner, Florian ; Rose, Julia. / Bubbles and Financial Professionals. In: Review of Financial Studies. 2019.
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Weitzel, U, Huber, C, Huber, J, Kirchler, M, Lindner, F & Rose, J 2019, 'Bubbles and Financial Professionals' Review of Financial Studies.

Bubbles and Financial Professionals. / Weitzel, Utz; Huber, Christoph; Huber, Jürgen; Kirchler, Michael; Lindner, Florian; Rose, Julia.

In: Review of Financial Studies, 2019.

Research output: Contribution to JournalArticleAcademicpeer-review

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AU - Huber, Christoph

AU - Huber, Jürgen

AU - Kirchler, Michael

AU - Lindner, Florian

AU - Rose, Julia

PY - 2019

Y1 - 2019

N2 - The efficiency of financial markets and 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.

AB - The efficiency of financial markets and 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.

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Weitzel U, Huber C, Huber J, Kirchler M, Lindner F, Rose J. Bubbles and Financial Professionals. Review of Financial Studies. 2019.