Financial Literacy and Asset Price Bubbles

Last registered on August 05, 2020
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Pre-Trial

Trial Information

General Information

Title
Financial Literacy and Asset Price Bubbles
RCT ID
AEARCTR-0004938
Initial registration date
August 04, 2020

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
August 05, 2020, 10:11 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
Albania
Region
Tirana

Primary Investigator

Name
Jonada Tafa
Affiliation
University of Bolognq
Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status
In development
Start date
2020-09-28
End date
2020-10-02
Keywords
Education, Finance & Microfinance
Additional Keywords
Financial Literacy
JEL code(s)
Secondary IDs
Abstract
This project aims to study the impact that financial literacy, enhanced through financial education, might have in mitigating the emergence of asset price bubbles. To this aim, we run a laboratory experiment with high school students who have taken part in a randomized control trial designed to test the effectiveness of a course in financial education in Tirana, Albania.
The experiment will involve two groups of students. The first group, referred to as the treated group, is composed of students who took the financial education course for one entire academic year. The second group (control), is composed of students who did not take such a course.
Students from both groups will be asked to trade against each other in a virtual trading platform. To measure the occurrence of an asset price bubble, we will replicate the design of Lei et al. (2001), based on Smith et al. (1988). The students will trade over a sequence of 15 trading periods, with fixed roles of buyers and sellers, so to avoid any speculative motive. Before trading, subjects will have information on the dividend distribution and will be informed whether their counterparts have also taken the course in financial education or not.
We hypothesize that students who were exposed to the financial education course will be less prone to give rise to financial bubbles and that bubbles will be less frequent and smaller in magnitude when treated students interact with each other, than when they interact with non-treated students.
External Link(s)

Registration Citation

Citation
Tafa, Jonada. 2020. "Financial Literacy and Asset Price Bubbles." AEA RCT Registry. August 05. https://doi.org/10.1257/rct.4938-1.0
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
The project includes four public schools in Tirana, Albania. Two of these schools offer a financial education course to its students in the 11th grade. The other two do not offer such a course. The course lasts for one academic year. It aims to enhance financial literacy, which affects the financial behavior of the individuals. We claim that financial literacy has an impact on asset trading as well. In total 120 students randomly picked from each school will participate in the project.
Intervention Start Date
2020-09-28
Intervention End Date
2020-10-02

Primary Outcomes

Primary Outcomes (end points)
Asset Price Bubble
Primary Outcomes (explanation)
To measure bubbles, I will refer to the definition by Lei et al. (2001), which defines bubbles as "trade at high volumes at prices considerably at variance with fundamental values." This implies that the size of the bubble depends on the volume of trades at prices above the fundamental value.

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
The experiment to test for an asset price bubble will be based on the work by Smith et al. (1988) and Lei et al. (2001) on "Experimental Asset Pricing." To conduct the experiment we run a laboratory experiment with high school students who have taken part in a randomized control trial designed to test the effectiveness of a course in financial education, in Tirana, Albania.
The experiment will involve two groups of students. The first group, referred to as the treated group, is composed of students who took the financial education course for one entire academic year. The second group (control), is composed of students who did not take such a course.
Students from both groups will be asked to trade against each other in a virtual trading platform. To measure the occurrence of an asset price bubble we will replicate the design of Lei et al. (2001), based on Smith et al. (1988). The students will trade over a sequence of 15 trading periods, with fixed roles of buyers and sellers, so to avoid any speculative motive. Before trading, subjects will have information on the dividend distribution and will be informed whether their counterparts have also taken the course in financial education or not.
Experimental Design Details
In total 120 students randomly picked from each school will participate in the project. 60 students will be chosen from the treated schools and 60 from the control group. Each group will have two different trading sessions, one for each school for the first two groups. Each session will include 20 students. The third also will have two different sessions, again 20 students each. Students from treated schools will be matched with students from the control group for each session. Students in each group will be asked to trade against each other in a virtual trading platform. Thus, the experiment will be conducted separately for each of the groups. Students of each group will be randomly selected from their schools. To measure bubbles, I will refer to the definition by Lei et al. (2001), which defines bubbles as "trade at high volumes at prices considerably at variance with fundamental values." This implies that the size of the bubble depends on the volume of trades at
prices above the fundamental value. As in Lei et al. (2001), students will not be given a chance for speculations, eliminating the possibility to trade for the aim of capital gains. The role of them, either a buyer or a seller, will be randomly chosen before. Each seller will be endowed with X units of an asset but no working capital at the beginning of period 1. Each buyer was endowed with a specific amount of working capital but zero units of the asset at the beginning of period 1. To empirically study the impact of financial literacy and financial education on asset price bubbles, I will use propensity-score matching to control for endogeneity and infer causal inference. Moreover, referring to the experiment of Smith et al. (1988), they will trade over a sequence of 15 trading period. Each session will last 3 minutes. Before the start of the experiment, a 20-minute instruction and question session will take place. Before the real experiment starts, they will be asked to trade for 10 minutes during a trial session. Prior to each trading period, students will be aware of the dividend distribution and informed that the dividend would be the same for all of them. Furthermore, they will be given information about their counterparts, whether they will be trading with a student who has taken a financial education course or not.
Randomization Method
Randomization will be done in an office by a computer
Randomization Unit
Individual-level: Students will be randomly selected
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
4 Schools
Sample size: planned number of observations
120 Students
Sample size (or number of clusters) by treatment arms
2 treated schools (offering a financial education course), 2 control schools
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
University of Bologna
IRB Approval Date
2019-12-16
IRB Approval Number
N/A
Analysis Plan

Post-Trial

Post Trial Information

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials