Traders' Expectations in Asset Markets: Experimental Evidence
Top Cited Papers
Open Access
- 1 December 2007
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 97 (5) , 1901-1920
- https://doi.org/10.1257/aer.97.5.1901
Abstract
We elicit traders' predictions of future price trajectories in repeated experimental markets for a 15-period-lived asset. We find that individuals' beliefs about prices are adaptive, and primarily based on past trends in the current and previous markets in which they have participated. Most traders do not anticipate market downturns the first time they participate in a market, and, when experienced, they typically overestimate the time remaining before market peaks and downturns occur. When prices deviate from fundamental values, belief data are informative to an observer in predicting the direction of future price movements and the timing of market peaks. (JEL C91, D12, D84, G11 )Keywords
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