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American Economic Review Vol. 97 No. 5 2007

Traders' Expectations in Asset Markets: Experimental Evidence

Ernan Haruvy1; Yaron Lahav2; Charles Noussair3

1 Department of Marketing, University of Texas-Dallas, 2601 North Floyd Rd., Richardson, TX 75083-0688. · 2 Department of Economics, Emory University, 1602 Fishburne Drive, Atlanta, GA 30322-2240. · 3 Department of Economics, Faculty of Economics and Business Administration, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, the Netherlands.

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.

DOI
10.1257/aer.97.5.1901
Volume
97
Issue
5
Pages
1901-1920
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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