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Price Bubbles in Laboratory Asset Markets with Constant Fundamental Values

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Author Info
Charles Noussair ()
Stephane Robin ()
Bernard Ruffieux ()

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Abstract

We construct asset markets that are similar to those studied by Smith, Suchanek and Williams (Econometrica. 56, 1119–1151) in which bubbles and crashes tended to occur. The main difference between the markets studied here and those studied by Smith et al. is that in the markets studied here, the fundamental value of the asset is constant over the entire life of the asset. In four of the eight sessions reported here, we observe bubbles, which are prices considerably higher than fundamental values. The data suggest that the frequent payment of dividends is a major cause of bubble formation. The property that the fundamental value remains constant over the course of the trading horizon is not sufficient to eliminate the possibility of a bubble. Copyright Kluwer Academic Publishers 2001

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Publisher Info
Article provided by Springer in its journal Experimental Economics.

Volume (Year): 4 (2001)
Issue (Month): 1 (June)
Pages: 87-105
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Handle: RePEc:kap:expeco:v:4:y:2001:i:1:p:87-105

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Related research
Keywords: asset market; bubble; experiment; speculation;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Ball, Sheryl B & Holt, Charles A, 1998. "Classroom Games: Speculation and Bubbles in an Asset Market," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 207-18, Winter. [Downloadable!] (restricted)
  2. Duxbury, Darren, 1995. " Experimental Asset Markets within Finance," Journal of Economic Surveys, Blackwell Publishing, vol. 9(4), pages 331-71, December.
  3. Porter, David P & Smith, Vernon L, 1995. "Futures Contracting and Dividend Uncertainty in Experimental Asset Markets," Journal of Business, University of Chicago Press, vol. 68(4), pages 509-41, October. [Downloadable!] (restricted)
  4. Van Boening, Mark V. & Williams, Arlington W. & LaMaster, Shawn, 1993. "Price bubbles and crashes in experimental call markets," Economics Letters, Elsevier, vol. 41(2), pages 179-185. [Downloadable!] (restricted)
  5. Sunder, S., 1992. "Experimental Asset Markets: A Survey," GSIA Working Papers 1992-19, Carnegie Mellon University, Tepper School of Business.
  6. Plott, Charles R. & Gray, Peter, 1990. "The multiple unit double auction," Journal of Economic Behavior & Organization, Elsevier, vol. 13(2), pages 245-258, March. [Downloadable!] (restricted)
  7. Camerer, Colin & Weigelt, Keith, 1991. "Information Mirages in Experimental Asset Markets," Journal of Business, University of Chicago Press, vol. 64(4), pages 463-93, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Giulio Bottazzi & Maria Giovanna Devetag, 2003. "Expectations Structure in Asset Pricing Experiments," LEM Papers Series 2003/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
    Other versions:
  2. Noussair, C.N. & Powell, O.R., 2008. "Peaks and Valleys: Experimental Asset Markets With Non-Monotonic Fundamentals," Discussion Paper 2008-49, Tilburg University, Center for Economic Research. [Downloadable!]
  3. Lux, Thomas, 2006. "Financial power laws : empirical evidence, models, and mechanism," Economics Working Papers 2006,12, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  4. Giulio Bottazzi & Giovanna Devetag & Francesca Pancotto, 2008. "Does Volatility matter? Expectations of price return and variability in an asset pricing experiment," CEEL Working Papers 0801, Computable and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia. [Downloadable!]
    Other versions:
  5. John Duffy & M. Utku Unver, 2003. "Asset Price Bubbles and Crashes with Near-Zero-Intelligence Traders: Towards an Understanding of Laboratory Findings," Computational Economics 0307001, EconWPA, revised 17 Mar 2004. [Downloadable!]
  6. Anderson, Christopher M. & Sutinen, Jon G., 2005. "A Laboratory Assessment of Tradable Fishing Allowances," Marine Resource Economics, Marine Resources Foundation, vol. 20(1). [Downloadable!]
  7. Oechssler, Jörg & Schmidt, Carsten & Schnedler, Wendelin, 2009. "Asset Bubbles without Dividends - An Experiment," Working Papers 0439, University of Heidelberg, Department of Economics. [Downloadable!]
    Other versions:
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