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An Experimental Study of Bubble Formation in Asset Markets Using the Tâtonnement Trading Institution

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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, despite its historical and contemporary relevance. The results show that bubbles are significantly reduced, 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/1107.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 11/07.

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Length: 37 pages
Date of creation: 01 Jan 2011
Date of revision:
Handle: RePEc:cbt:econwp:11/07

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Related research

Keywords: Experimental Asset Markets; Price Bubbles; Trading Institutions; Tâtonnement;

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References

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  1. 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.
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Cited by:
  1. Bluhm, Marcel & Faia, Ester & Krahnen, Jan Pieter, 2013. "Endogenous banks' networks, cascades and systemic risk," SAFE Working Paper Series 12, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  2. Stefan Palan, 2013. "A Review of Research into Smith, Suchanek and Williams Markets," Working Paper Series, Social and Economic Sciences 2013-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
  3. Giusti, Giovanni & Jiang, Janet Hua & Xu, Yiping, 2012. "Eliminating Laboratory Asset Bubbles by Paying Interest on Cash," MPRA Paper 37321, University Library of Munich, Germany.
  4. Breaban, A. & Noussair, C.N., 2013. "Emotional state and Market Behavior," Discussion Paper 2013-031, Tilburg University, Center for Economic Research.

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