Using experimental asset markets, we study the situation of a financial analyst who is trying to infer the fundamental value of an asset by observing the market’s history. We find that such capacity requires both standard cognitive skills (IQ) as well as social and emotional skills. However, forecasters with high emotional skills tend to perform worse when market mispricing is high as they tend to give too much emphasis to the noisy signals from market data. By contrast, forecasters with high social skills perform especially well in markets with high levels of mispricing in which their skills could help them detect possible manipulation attempts. Finally, males outperform females in the forecasting task after controlling for a large number of relevant individual characteristics such as risk attitudes, cognitive skills, emotional intelligence, and personality traits.
Corgnet, B., Deck, C., DeSantis, M., & Porter, D. (2020). Forecasting skills in experimental markets: Illusion or reality? ESI Working Paper 20-27. https://digitalcommons.chapman.edu/esi_working_papers/322/
ESI Working Paper 20-27
This paper later underwent peer review and was published as:
Corgnet, B., Deck, C., DeSantis, M., & Porter, D. (2021). Forecasting skills in experimental markets: Illusion or reality? Management Science. https://doi.org/10.1287/mnsc.2021.4160