What is the role of social interactions in the creation of price bubbles? Answering this question requires obtaining collective behavioural traces generated by the activity of a large number of actors. Digital currencies offer a unique possibility to measure socio-economic signals from such digital traces. Here, we focus on Bitcoin, the most popular cryptocurrency. Bitcoin has experienced perio...

Keeping a basic tenet of economic theory, rational expectations, we model the nonlinear positive feedback between agents in the stock market as an interplay between nonlinearity and multiplicative noise. The derived hyperbolic stochastic finite-time singularity formula transforms a Gaussian white noise into a rich time series possessing all the stylized facts of empirical prices, as well as acc...

Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messag...

Evolutionary models broadly support a number of social learning strategies likely important in economic behavior. Using a simple model of price dynamics, I show how prestige bias, or copying of famed (and likely successful) individuals, influences price equilibria and investor disposition in a way that exacerbates or creates market bubbles. I discuss how integrating the social learning and demo...

bubbles in asset prices have fascinated researchers in finance. identify asset bubbles, by circumstances, on the stock market has been a growing number of research theoretical and empirical. on a theoretical level, it was assumed that the price dynamics reflect irrational behavior of economic agents and, therefore, should be excluded from a deal with the truly rational economic agents burmeiste...

I investigate the behavior of individual investors in an experimental asset market that features a bubble. Subjects trade a risky asset at prices that do not change in response to their trades. The prices are taken from the outcome of a previous asset market experiment. This unique setup makes it possible to identify behavioral di¤erences between subjects who understand asset fundamentals and t...

Identifying unambiguously the presence of a bubble in an asset price remains an unsolved problem in standard econometric and financial economic approaches. A large part of the problem is that the fundamental value of an asset is, in general, not directly observable and it is poorly constrained to calculate. Further, it is not possible to distinguish between an exponentially growing fundamental ...

We experimentally explore how investor decision horizons influence the formation of stock prices. We find that in long-horizon sessions, where investors collect dividends till maturity, prices converge to the fundamental levels derived from dividends through backward induction. In short-horizon sessions, where investors exit the market by receiving the price (not dividends), price levels and pa...

We present a simple macroeconomic model that includes a role for an asset-price bubble. We then derive optimal monetary policy settings for two policymakers: a skeptic, for whom the best forecast of future asset prices is the current price; and an activist, whose policy recommendations take into account the complete stochastic implications of the bubble. We show that the activist’s recommendati...