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Cash inflow and trading horizon in asset markets

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  • Razen, Michael
  • Huber, Jürgen
  • Kirchler, Michael

Abstract

It is conjectured that one of the major ingredients of historic financial bubbles was the inflow of money in various forms. We run 36 laboratory asset markets to investigate the joint effect of cash inflow and trading horizon on price efficiency. We show that markets with cash inflow and long trading horizon exhibit bubbles and crashes. We also observe that markets with extended trading horizon but without cash inflow and markets with shorter trading horizon do not trigger bubbles. Finally, we report that beliefs about prices and, importantly, about (constant) fundamentals follow bubble patterns as well.

Suggested Citation

  • Razen, Michael & Huber, Jürgen & Kirchler, Michael, 2017. "Cash inflow and trading horizon in asset markets," European Economic Review, Elsevier, vol. 92(C), pages 359-384.
    • Handle: RePEc:eee:eecrev:v:92:y:2017:i:c:p:359-384
    DOI: 10.1016/j.euroecorev.2016.11.010
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    Cited by:

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    2. Christoph Huber & Parampreet C. Bindra & Daniel Kleinlercher, 2019. "Design-features of bubble-prone experimental asset markets with a constant FV," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 5(2), pages 197-209, December.
    3. Anufriev, Mikhail & Chernulich, Aleksei & Tuinstra, Jan, 2022. "Asset price volatility and investment horizons: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 19-48.
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    5. Darby, Julia & Zhang, Hai & Zhang, Jinkai, 2021. "Institutional trading in volatile markets: Evidence from Chinese stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    6. Giamattei, Marcus & Huber, Jürgen & Lambsdorff, Johann Graf & Nicklisch, Andreas & Palan, Stefan, 2020. "Who inflates the bubble? Forecasters and traders in experimental asset markets," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    7. Hirota, Shinichi, 2023. "Money supply, opinion dispersion, and stock prices," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 1286-1310.
    8. Steven Tucker & Yilong Xu, 2024. "Nonspeculative Bubbles Revisited," Working Papers in Economics 24/01, University of Waikato.
    9. Corgnet, Brice & Hernán-González, Roberto & Kujal, Praveen, 2020. "On booms that never bust: Ambiguity in experimental asset markets with bubbles," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    10. Utz Weitzel & Christoph Huber & Jürgen Huber & Michael Kirchler & Florian Lindner & Julia Rose & Lauren Cohen, 2020. "Bubbles and Financial Professionals [Margin, short sell, and lotteries in experimental asset markets]," Review of Financial Studies, Society for Financial Studies, vol. 33(6), pages 2659-2696.
    11. repec:awi:wpaper:0690 is not listed on IDEAS
    12. Bao, Zhengyang & Kalaycı, Kenan & Leibbrandt, Andreas & Oyarzun, Carlos, 2020. "Do regulations work? A comprehensive analysis of price limits and trading restrictions in experimental asset markets with deterministic and stochastic fundamental values," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 59-84.
    13. Dieci, Roberto & Schmitt, Noemi & Westerhoff, Frank H., 2022. "Boom-bust cycles and asset market participation waves: Momentum, value, risk and herding," BERG Working Paper Series 177, Bamberg University, Bamberg Economic Research Group.
    14. Steiger, Sören & Pelster, Matthias, 2020. "Social interactions and asset pricing bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 503-522.
    15. Hoyer, Karlijn & Zeisberger, Stefan & Breugelmans, Seger M. & Zeelenberg, Marcel, 2023. "A culture of greed: Bubble formation in experimental asset markets with greedy and non-greedy traders," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 32-52.

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    More about this item

    Keywords

    Experimental finance; Cash inflow; Trading horizon; Backward induction; Asset market; Price efficiency;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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