Sign up for our daily briefing
Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.
Stay on top of the latest market trends
Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.
Sports news worthy of your time
Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.
Tech news worthy of your time
Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.
Get the inside stories
Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Want a daily digest of the top Denver news?
Get a daily digest of the most important stories affecting your hometown with Axios Denver
Want a daily digest of the top Des Moines news?
Get a daily digest of the most important stories affecting your hometown with Axios Des Moines
Want a daily digest of the top Twin Cities news?
Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities
Want a daily digest of the top Tampa Bay news?
Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay
Want a daily digest of the top Charlotte news?
Get a daily digest of the most important stories affecting your hometown with Axios Charlotte
A new study from the New York Fed finds that when amateurs drive a market bubbles develop.
Why it matters: Given the rising number of inexperienced retail traders who have taken to investing this year, the study's findings could have obvious implications for the current state of U.S. financial markets.
What happened: Researchers at the central bank designed an experiment featuring trained stock traders and untrained students to see how they would respond to a controlled experiment in which both groups attempt to value assets.
What they're saying: "We find three differences between traders and students:
- "Traders do not generate the price bubbles observed in previous studies with student subjects."
- "Traders aggregate private information better."
- "Traders show higher levels of strategic sophistication in the Guessing Game."
What it means: "Rather than reflecting differences in cognitive abilities or other individual characteristics, these results point to the impact of traders’ on-the-job learning and traders’ beliefs about their peers’ strategic sophistication."
Zoom in: "Traders were better at understanding the repetitive feedback loop that comes when you try to predict the actions of other people who are also trying to predict crowd behavior," DataTrek Research co-founder Nicholas Colas notes. "Students largely failed to understand this dynamic."
Be smart: Another important point from Colas, who highlighted the study in his morning note: "The fact that the rookies create asset price bubbles in the middle (not at the start) of their involvement is intriguing, and other studies agree on this fact."
- "Since you only know where 'the middle' might be once you’re well past it, this is exactly why trading bubbles in real time is so difficult."