On the ingredients for bubble formation: Informed traders and communication
AbstractBubbles in asset markets have been documented in numerous experiments. Most experiments in which bubbles occur feature a declining fundamental value. This feature has been criticized for being atypical of real financial markets. Here, we experimentally study other ingredients for bubble formation that are common in such markets, namely the existence of inside information and communication among traders. We find that bubbles and mirages can occur if these additional ingredients are present. In particular, the mere possibility that some traders are better informed than others can create bubbles. Surprisingly, communication turns out to be counterproductive for bubble formation.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 35 (2011)
Issue (Month): 11 ()
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Web page: http://www.elsevier.com/locate/jedc
Asset markets; Bubbles; Experiment; Mirages; Dividends;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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- Stéphane Robin & Katerina Straznicka & Marie Claire Villeval, 2012.
"Bubbles and Incentives : An Experiment on Asset Markets,"
1235, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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- Baghestanian, Sascha & Walker, Todd B., 2014. "Thar she blows again: Reducing anchoring rekindles bubbles," SAFE Working Paper Series 54, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
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- Helena Veiga & Marc Vorsatz, 2010. "Information aggregation in experimental asset markets in the presence of a manipulator," Experimental Economics, Springer, vol. 13(4), pages 379-398, December.
- Thomas Stöckl & Jürgen Huber & Michael Kirchler, 2010. "Bubble measures in experimental asset markets," Experimental Economics, Springer, vol. 13(3), pages 284-298, September.
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