Investors’ Heterogeneous Beliefs And The Formation Of Asset Price Bubbles

As the growth of asset market,capital can flow in the world scope,and has played a big role for the rational allocation of resources on a global scale,which is of great significance,but a series of problems has also been produced in the capital market operation,including a very common phenomenon,the price bubble.The expansion and the burst of the asset price bubbles had a serious impact on the stable operation of the asset markets,what’s more,drastic fluctuations of asset prices have brought great harm to investors and the whole society.Therefore,studying the mechanism of asset price bubble is important premise to effectively restrain asset price bubbles,to make the asset prices fluctuate in value,rather than have a huge deviation from the intrinsic value,and it is of great significance to maintain asset market stability.As for the formation mechanism of price bubble,the scholars have done much in-depth study.It has been found that asset price bubble has a great relationship with investors’ heterogeneous beliefs.Heterogeneous beliefs contains heterogeneous information set,heterogeneous prior beliefs and heterogeneous beliefs treatment,this paper is to study the influence of heterogeneous beliefs on asset market price bubble,heterogeneous prior conviction is that different traders have different information or different qualities before trading in advance,and different heterogeneous beliefs treatment refers that even in the face of the same information,different people can also make inconsistent behavior,which is the influence of individual differences.They have different expectations on asset prices for the future.If they have the same expectations,then they will act almost the same,this shows that investors are bounded rational.This paper also studies the influence of informed traders who have inside information on the formation of the asset price bubbles,which is the role of heterogeneous prior beliefs.Because it is difficult to find effective proxy variable for heterogeneous beliefs in the process of empirical research,the research results would be interferenced,so we will study with the method of experiment.Experiment has a unique advantage which can control the variable condition of the experimental study to make sure the influence degree of specific variables on asset price bubbles,and it is convenient to study the behavior of investors in different stages,and find the effective ways to restrain price bubble.An innovative point of this article is on the choice of carrier of heterogeneous beliefs,and we specifically introduce a special kind of traders which called Zero-Intelligence traders that is not like individual behavior person who want to maximize their interests.They cannot see,and have no memory and learning ability,in the experiment we use computer programs to implement which can only be in accordance with the fixed rules and regulations of transaction.Using Zero-Intelligence traders can effectively rule out the person’s psychological factor and the influence of other factors such as risk preference.We can test the role of different investors in the formation mechanism of price bubble using investors in different types which have different ways of information processing as the carrier of heterogeneous beliefs.In order to test the influence of heterogeneous beliefs treatment on the mechanism of price bubble,whether the existence of Zero-Intelligence traders would restrain price bubbles,and how informed insiders influence the price bubbles,four experiments in this paper were designed in the experimental market,the four experiments are as follows:the benchmark experimental group(all participants are normal person and all are uninformed traders),A market containing all real persons with informed information,Another group is uninformed traders experiment market with Zero-Intelligence traders,the final group contains Zero-Intelligence traders and normal trader with informed information.Heterogeneous belief is an important aspect on the influence of asset price bubbles which enable traders to process information in a different way so as to produce different trading behavior,and show the fluctuations of market price.In addition,the presence of insider information will increase the asymmetry degree of market information and will further influence the investor’s behavior,and the rational degree is reduced,which increase the fluctuations of market price,which means the price bubble is bigger.Zero-Intelligence traders make the market trading volume big,strengthen the market activity,and can play an exemplary role to other ordinary traders which can weaken the market price bubble and improve the efficiency of market operation as well.As the research ability is limited,there are also some disadvantages in this paper which mainly manifested in the following aspects:first,in the selection of heterogeneous beliefs carrier,we selected the informed traders and uninformed traders and Zero-Intelligence traders,and these different heterogeneous investors form an abstract market which simulate the actual capital market,and we do not measure the gap between the two using data;Secondly,the sample size is relatively limited,although the number of samples in this experimental study conform to the required sample size in experimental economical method,due to the limited experimental funds,there is not a quantity expansion on the experimental subjects;Thirdly,the Angle of the analysis is limited in the process of the data analysis.