Double Bubbles in Assets Markets with Multiple Generations
AbstractWe construct an asset market in a finite horizon overlapping-generations environment. Subjects are tested for comprehension of their fundamental value exchange environment, and then reminded during each of 25 periods of its declining new value. We observe price bubbles forming when new generations enter the market with additional liquidity and bursting as old generations exit the market and withdrawing cash. The entry and exit of traders in the market creates an M shaped double bubble price path over the life of the traded asset. This finding is significant in documenting that bubbles can reoccur within one extended trading horizon and, consistent with previous cross-subject comparisons, shows how fluctuations in market liquidity influence price paths. We also find that trading experience leads to price expectations that incorporate fundamental value.
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Bibliographic InfoPaper provided by Chapman University, Economic Science Institute in its series Working Papers with number 11-10.
Length: 18 pages
Date of creation: 2011
Date of revision:
Asset Markets; Price Bubbles; Laboratory Experiments; Overlapping Generations;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-09 (All new papers)
- NEP-DGE-2011-10-09 (Dynamic General Equilibrium)
- NEP-EXP-2011-10-09 (Experimental Economics)
- NEP-MST-2011-10-09 (Market Microstructure)
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.:
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