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Informational Contagion in the Laboratory

Guarino, A; Cipriani, M; Tagliati, F; Guazzarotti, G; Fischer, S; (2018) Informational Contagion in the Laboratory. Review of Finance , 22 (3) pp. 877-904. 10.1093/rof/rfx031. Green open access

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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.

Type: Article
Title: Informational Contagion in the Laboratory
Open access status: An open access version is available from UCL Discovery
DOI: 10.1093/rof/rfx031
Publisher version: https://doi.org/10.1093/rof/rfx031
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Financial Contagion, Informational Spillovers, Experimental Finance
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1528734
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