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Informational Contagion in the Laboratory

Author

Listed:
  • Marco Cipriani
  • Antonio Guarino
  • Giovanni Guazzarotti
  • Federico Tagliati
  • Sven Fischer

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.

Suggested Citation

  • Marco Cipriani & Antonio Guarino & Giovanni Guazzarotti & Federico Tagliati & Sven Fischer, 2018. "Informational Contagion in the Laboratory," Review of Finance, European Finance Association, vol. 22(3), pages 877-904.
    • Handle: RePEc:oup:revfin:v:22:y:2018:i:3:p:877-904.
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    Cited by:

    1. Debarsy, Nicolas & Dossougoin, Cyrille & Ertur, Cem & Gnabo, Jean-Yves, 2018. "Measuring sovereign risk spillovers and assessing the role of transmission channels: A spatial econometrics approach," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 21-45.
    2. Chen, Bin-xia & Sun, Yan-lin, 2022. "The impact of VIX on China’s financial market: A new perspective based on high-dimensional and time-varying methods," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    3. König-Kersting, Christian & Trautmann, Stefan T. & Vlahu, Razvan, 2022. "Bank instability: Interbank linkages and the role of disclosure," Journal of Banking & Finance, Elsevier, vol. 134(C).
    4. Bayona, Anna & Peia, Oana, 2022. "Financial contagion and the wealth effect: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1184-1202.
    5. Concetta Rondinelli & Roberta Zizza, 2020. "Spend today or spend tomorrow? The role of inflation expectations in consumer behaviour," Temi di discussione (Economic working papers) 1276, Bank of Italy, Economic Research and International Relations Area.
    6. König-Kersting, Christian & Trautmann, Stefan T. & Vlahu, Razvan, 2022. "Bank instability: Interbank linkages and the role of disclosure," Journal of Banking & Finance, Elsevier, vol. 134(C).
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    More about this item

    Keywords

    Financial contagion; Informational spillovers; Experimental finance;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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