Bubbles and Financial Professionals

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

doi:10.1093/rfs/hhz093

Bubbles and Financial Professionals

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

Finance

Research output: Contribution to Journal › Article › Academic › peer-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 language	English
Pages (from-to)	2659-2696
Journal	Review of Financial Studies
Volume	33
Issue number	6
DOIs	https://doi.org/10.1093/rfs/hhz093
Publication status	Published - Jun 2020

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Replication data for: Bubbles and Financial Professionals
Weitzel, U. (Creator), Huber, C. (Contributor), Huber, J. (Contributor), Kirchler, M. (Contributor), Lindner, F. (Creator) & Rose, J. (Creator), Open Science Framework, 1 Mar 2019
https://osf.io/265dp/files/
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AU - Rose, Julia

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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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Bubbles and Financial Professionals

Abstract

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