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An Experimental Study of Bubble Formation in Asset Markets Using the Tâtonnement Pricing Mechanism

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Author Info

  • Volodymyr Lugovskyy
  • Daniela Puzzello
  • Steven Tucker

    ()
    (University of Canterbury)

Abstract

We report the results of an experiment designed to study the role of institutional structure in the formation of bubbles and crashes in laboratory asset markets. In a setting employing double auctions and call markets as trading institutions, bubbles and crashes are a quite robust phenomenon. The only factor appearing to reduce bubbles is experience across markets. In this study, we employ the tâtonnement trading institution, which has not been previously explored in laboratory asset markets. The results show that bubbles are eliminated, suggesting that the trading institution plays a crucial role in the formation of bubbles.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0919.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 09/19.

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Length: 34 pages
Date of creation: 20 Nov 2009
Date of revision:
Handle: RePEc:cbt:econwp:09/19

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Related research

Keywords: Bubbles; Trading Institutions; Pricing Mechanisms; Tâtonnement;

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References

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  1. Mark van Boening & Vernon L. Smith & Charissa P. Wellford, 2000. "Dividend timing and behavior in laboratory asset markets," Economic Theory, Springer, vol. 16(3), pages 567-583.
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Citations

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Cited by:
  1. Adriana Breaban & Charles N. Noussair, 2014. "Fundamental value trajectories and trader characteristics in an asset market experiment," Working Papers 2014/08, Economics Department, Universitat Jaume I, Castellón (Spain).
  2. John Duffy & Sean Crockett, 2010. "An Experimental Test of the Lucas Asset Pricing Model," Working Papers 504, University of Pittsburgh, Department of Economics, revised May 2013.
  3. Powell, O.R., 2010. "Essays on experimental bubble markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4219264, Tilburg University.

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