Review of Finance Vol. 22 No. 3 2018

Informational Contagion in the Laboratory

Marco Cipriani¹; Antonio Guarino²; Giovanni Guazzarotti³; Federico Tagliati²; Sven Fischer⁴

¹ Federal Reserve Bank of New York · ² University College London · ³ Bank of Italy · ⁴ Newcastle University Business School

Abstract

We study the informational channel of financial contagion in the laboratory. In our experiment, two markets with privately informed subjects open sequentially. Subjects in the second market observe the history of trades and prices in the first market. Although in both markets private information is imperfectly aggregated, subjects in the second market make correct inferences from the information coming from the first market. As theory predicts, when fundamentals are correlated, contagion occurs in the laboratory; in contrast, with independent fundamentals, there is no contagion effect. In both cases, the correlation between asset prices is very close to the theoretical one.

DOI

10.1093/rof/rfx031

Volume

22

Issue

3

Pages

877-904

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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