Traders' Expectations In Asset Markets: Experimental Evidence
Source: University of Texas (Dallas)
The paper elicits traders' predictions of future price trajectories in repeated experimental markets for a 15-period-lived asset. It's found 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 is informative to an observer in predicting the direction of future price movements and the timing of market peaks.