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, but also 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
Pages (from-to)2659–2696
JournalThe Review of Financial Studies
Volume33
Issue number6
DOIs
Publication statusPublished - Jun 2020
Externally publishedYes

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