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.
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.
| Originalsprache | Englisch |
|---|---|
| Seiten (von - bis) | 2659 - 2696 |
| Fachzeitschrift | Review of Financial Studies |
| Jahrgang | 33 |
| DOIs | |
| Publikationsstatus | Veröffentlicht - 2020 |