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Expectationally-Driven Market Volatility: An Experimental Study

Discussion Paper 73 | Published August 1, 1992

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Authors

Ramon Marimon

Shyam Sunder

Stephen E. Spear

Expectationally-Driven Market Volatility: An Experimental Study

Abstract

We study the existence and robustness of expectationally-driven price volatility in experimental overlapping generation economies. Iin the theoretical model under study there exist “pure sunspot” equilibria which can be “learned” if agents use some adaptive learning rules. Our data show the existence of expectationally-driven cycles, but only after subjects have been exposed to a sequence of real shocks and “learned” a real cycle. In this sense, we show evidence of path-dependent price volatility.


Published In: Journal of Economic Theory (Vol. 61, No. 1, October 1993, pp. 74-103) https://doi.org/10.1006/jeth.1993.1059