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

^*Corresponding author for this work

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
Number of pages	38
Journal	Review of Financial Studies
Volume	33
Issue number	6
Early online date	28 Aug 2019
DOIs	https://doi.org/10.1093/rfs/hhz093
Publication status	Published - Jun 2020

Bibliographical note

Funding Information:
We thank Peter Bossaerts, Markus Brunnermeier, Alain Cohn, Brice Corgnet, Christoph Engel, Sascha Füllbrunn, Hanjo Hamann, Daniel Kleinlercher, Jörg Oechssler, Stefan Palan, Charles Plott, David Porter, David Schindler, Christoph Siemroth, Wei Xiong, and Stefan Zeisberger; seminar participants at Chapman University, the Helsinki Center of Economic Research (HECER), and the Universities of Innsbruck and Tilburg; and conference participants of ESA 2017 in Vienna, Experimental Finance 2017 in Nice, Austrian Working Group on Banking and Finance 2017, the Dutch Authority for Financial Markets (AFM), the EEG Inaugural Conference at the Max Planck Institute for Research on Collective Goods in Bonn 2018, the Behavioral Finance Working Group Conference 2018, Queen Mary University of London 2018, and the Innsbruck-Vienna Experimental Day 2018 for very valuable comments. We are grateful to Parampreet Christopher Bindra, Laura Hueber, and Julia Scheunert for excellent research assistance. We particularly thank all financial institutions and participating professionals for the excellent collaboration and their enthusiasm. Financial support from the Austrian Science Fund FWF (START-grant Y617-G11 and SFB F63), Radboud University, and the Swedish Research Council (grant 2015-01713) is gratefully acknowledged. This study was ethically approved by the IRB of the University of Innsbruck. A prior version of this paper was presented with the title “Market Experience and Price Efficiency – Evidence from Experiments with Financial Professionals.” Supplementary data can be found on The Review of Financial Studies web site. Send correspondence to Michael Kirchler, Department of Banking and Finance, University of Innsbruck, Universitätsstrasse 15, 6020 Innsbruck, Austria; telephone: +43 512 507 73014. E-mail: [email protected].

Publisher Copyright:
© The Authors 2019. Published by Oxford University Press.

Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.

Funding

We thank Peter Bossaerts, Markus Brunnermeier, Alain Cohn, Brice Corgnet, Christoph Engel, Sascha Füllbrunn, Hanjo Hamann, Daniel Kleinlercher, Jörg Oechssler, Stefan Palan, Charles Plott, David Porter, David Schindler, Christoph Siemroth, Wei Xiong, and Stefan Zeisberger; seminar participants at Chapman University, the Helsinki Center of Economic Research (HECER), and the Universities of Innsbruck and Tilburg; and conference participants of ESA 2017 in Vienna, Experimental Finance 2017 in Nice, Austrian Working Group on Banking and Finance 2017, the Dutch Authority for Financial Markets (AFM), the EEG Inaugural Conference at the Max Planck Institute for Research on Collective Goods in Bonn 2018, the Behavioral Finance Working Group Conference 2018, Queen Mary University of London 2018, and the Innsbruck-Vienna Experimental Day 2018 for very valuable comments. We are grateful to Parampreet Christopher Bindra, Laura Hueber, and Julia Scheunert for excellent research assistance. We particularly thank all financial institutions and participating professionals for the excellent collaboration and their enthusiasm. Financial support from the Austrian Science Fund FWF (START-grant Y617-G11 and SFB F63), Radboud University, and the Swedish Research Council (grant 2015-01713) is gratefully acknowledged. This study was ethically approved by the IRB of the University of Innsbruck. A prior version of this paper was presented with the title “Market Experience and Price Efficiency – Evidence from Experiments with Financial Professionals.” Supplementary data can be found on The Review of Financial Studies web site. Send correspondence to Michael Kirchler, Department of Banking and Finance, University of Innsbruck, Universitätsstrasse 15, 6020 Innsbruck, Austria; telephone: +43 512 507 73014. E-mail: [email protected].

Funders	Funder number
Radboud Universitair Medisch Centrum
Austrian Science Fund	Y 617, SFB F63, Y617-G11
Vetenskapsrådet	2015-01713

Access to Document

10.1093/rfs/hhz093

Persistent URL (handle)

Persistent link

Cite this

@article{928ceb3187ad476899754aa47b2812b0,

title = "Bubbles and financial professionals",

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.",

author = "Utz Weitzel and Christoph Huber and J{\"u}rgen Huber and Michael Kirchler and Florian Lindner and Julia Rose",

note = "Funding Information: We thank Peter Bossaerts, Markus Brunnermeier, Alain Cohn, Brice Corgnet, Christoph Engel, Sascha F{\"u}llbrunn, Hanjo Hamann, Daniel Kleinlercher, J{\"o}rg Oechssler, Stefan Palan, Charles Plott, David Porter, David Schindler, Christoph Siemroth, Wei Xiong, and Stefan Zeisberger; seminar participants at Chapman University, the Helsinki Center of Economic Research (HECER), and the Universities of Innsbruck and Tilburg; and conference participants of ESA 2017 in Vienna, Experimental Finance 2017 in Nice, Austrian Working Group on Banking and Finance 2017, the Dutch Authority for Financial Markets (AFM), the EEG Inaugural Conference at the Max Planck Institute for Research on Collective Goods in Bonn 2018, the Behavioral Finance Working Group Conference 2018, Queen Mary University of London 2018, and the Innsbruck-Vienna Experimental Day 2018 for very valuable comments. We are grateful to Parampreet Christopher Bindra, Laura Hueber, and Julia Scheunert for excellent research assistance. We particularly thank all financial institutions and participating professionals for the excellent collaboration and their enthusiasm. Financial support from the Austrian Science Fund FWF (START-grant Y617-G11 and SFB F63), Radboud University, and the Swedish Research Council (grant 2015-01713) is gratefully acknowledged. This study was ethically approved by the IRB of the University of Innsbruck. A prior version of this paper was presented with the title “Market Experience and Price Efficiency – Evidence from Experiments with Financial Professionals.” Supplementary data can be found on The Review of Financial Studies web site. Send correspondence to Michael Kirchler, Department of Banking and Finance, University of Innsbruck, Universit{\"a}tsstrasse 15, 6020 Innsbruck, Austria; telephone: +43 512 507 73014. E-mail: [email protected]. Publisher Copyright: {\textcopyright} The Authors 2019. Published by Oxford University Press. Copyright: Copyright 2021 Elsevier B.V., All rights reserved.",

year = "2020",

month = jun,

doi = "10.1093/rfs/hhz093",

language = "English",

volume = "33",

pages = "2659--2696",

journal = "Review of Financial Studies",

issn = "0893-9454",

publisher = "Oxford University Press",

number = "6",

}

TY - JOUR

T1 - Bubbles and financial professionals

AU - Weitzel, Utz

AU - Huber, Christoph

AU - Huber, Jürgen

AU - Kirchler, Michael

AU - Lindner, Florian

AU - Rose, Julia

N1 - Funding Information: We thank Peter Bossaerts, Markus Brunnermeier, Alain Cohn, Brice Corgnet, Christoph Engel, Sascha Füllbrunn, Hanjo Hamann, Daniel Kleinlercher, Jörg Oechssler, Stefan Palan, Charles Plott, David Porter, David Schindler, Christoph Siemroth, Wei Xiong, and Stefan Zeisberger; seminar participants at Chapman University, the Helsinki Center of Economic Research (HECER), and the Universities of Innsbruck and Tilburg; and conference participants of ESA 2017 in Vienna, Experimental Finance 2017 in Nice, Austrian Working Group on Banking and Finance 2017, the Dutch Authority for Financial Markets (AFM), the EEG Inaugural Conference at the Max Planck Institute for Research on Collective Goods in Bonn 2018, the Behavioral Finance Working Group Conference 2018, Queen Mary University of London 2018, and the Innsbruck-Vienna Experimental Day 2018 for very valuable comments. We are grateful to Parampreet Christopher Bindra, Laura Hueber, and Julia Scheunert for excellent research assistance. We particularly thank all financial institutions and participating professionals for the excellent collaboration and their enthusiasm. Financial support from the Austrian Science Fund FWF (START-grant Y617-G11 and SFB F63), Radboud University, and the Swedish Research Council (grant 2015-01713) is gratefully acknowledged. This study was ethically approved by the IRB of the University of Innsbruck. A prior version of this paper was presented with the title “Market Experience and Price Efficiency – Evidence from Experiments with Financial Professionals.” Supplementary data can be found on The Review of Financial Studies web site. Send correspondence to Michael Kirchler, Department of Banking and Finance, University of Innsbruck, Universitätsstrasse 15, 6020 Innsbruck, Austria; telephone: +43 512 507 73014. E-mail: [email protected]. Publisher Copyright: © The Authors 2019. Published by Oxford University Press. Copyright: Copyright 2021 Elsevier B.V., All rights reserved.

PY - 2020/6

Y1 - 2020/6

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.

UR - http://www.scopus.com/inward/record.url?scp=85101355100&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85101355100&partnerID=8YFLogxK

U2 - 10.1093/rfs/hhz093

DO - 10.1093/rfs/hhz093

M3 - Article

AN - SCOPUS:85101355100

SN - 0893-9454

VL - 33

SP - 2659

EP - 2696

JO - Review of Financial Studies

JF - Review of Financial Studies

IS - 6

ER -

Bubbles and financial professionals

Abstract

Bibliographical note

Funding

Access to Document

Persistent URL (handle)

Other files and links

Fingerprint

Replication data for: Bubbles and Financial Professionals

Cite this

Bubbles and financial professionals

Abstract

Bibliographical note

Funding

Access to Document

Persistent URL (handle)

Other files and links

Fingerprint

Datasets

Replication data for: Bubbles and Financial Professionals

Cite this