Informational Contagion in the Laboratory. (30th June 2017)

• Record Type: Journal Article
• Authors: Cipriani, Marco; Guarino, Antonio; Guazzarotti, Giovanni; Tagliati, Federico; Fischer, Sven
• Is Part Of: Review of finance. Volume 22:Number 3(2018)
• Page Start: 877
• Page End: 904
• Publication Date: 2017-06-30
• Subjects: Financial contagion -- Informational spillovers -- Experimental finance; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfx031
• Languages: English
• ISSNs: 1572-3097

Abstract

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.