Janssen, D.J., Füllbrunn, S. and Weitzel, U. (2019). Individual speculative behavior and overpricing in experimental asset markets Experimental Economics, 22(3):653--675.

A rich history of theoretical models in finance shows that speculation can lead to overpricing and price bubbles. We provide evidence that, indeed, individual speculative behavior fuels overpricing in (experimental) asset markets. In a first step, we elicit individual speculative behavior in a one-shot setting with a novel speculation elicitation task (SET). In a second step, we use this measure of speculative behavior to compose dynamic, continuous double auction markets in line with Smith et al. (Econometrica 56(5):1119–1151, 1988). We find significant higher overpricing in markets with traders who exhibited more speculative behavior in the individual SET. However, we find no such differences in overpricing when we test for alternative explanations, using a market environment introduced by Lei, Noussair, and Plott (Econometrica 69(4):831–859, 2001) where speculation is impossible. Taken together, our results corroborate the notion that speculation is an important factor in overpricing and bubble formation if market environments allow for the pursuit of capital gains.