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Expectationally Driven Market Volatility: An Experimental Study

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  • Marimon Ramon
  • Spear Stephen E.
  • Sunder Shyam

Abstract

We study the existence and robustness of expectationally-driven price volatility in experimental overlapping generation economies. In 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.
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  • Marimon Ramon & Spear Stephen E. & Sunder Shyam, 1993. "Expectationally Driven Market Volatility: An Experimental Study," Journal of Economic Theory, Elsevier, vol. 61(1), pages 74-103, October.
    • Handle: RePEc:eee:jetheo:v:61:y:1993:i:1:p:74-103
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    1. Evans, George W., 1989. "The fragility of sunspots and bubbles," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 297-317, March.
    2. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    3. Marimon, Ramon & Sunder, Shyam, 1993. "Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence," Econometrica, Econometric Society, vol. 61(5), pages 1073-1107, September.
    4. Evans, George W. & Honkapohja, Seppo & Sargent, Thomas J., 1993. "On the preservation of deterministic cycles when some agents perceive them to be random fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 705-721.
    5. Evans, George W., 1986. "Selection criteria for models with non-uniqueness," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 147-157, September.
    6. Lim, Suk S & Prescott, Edward C & Sunder, Shyam, 1994. "Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence," Empirical Economics, Springer, vol. 19(2), pages 255-277.
    7. Spear, Stephen E. & Srivastava, Sanjay & Woodford, Michael, 1990. "Indeterminacy of stationary equilibrium in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 50(2), pages 265-284, April.
    8. Spear, Stephen E., 1984. "Sufficient conditions for the existence of sunspot equilibria," Journal of Economic Theory, Elsevier, vol. 34(2), pages 360-370, December.
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