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Can Concentration Control Policies Eliminate Bubbles?

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Author Info

  • Volodymyr Lugovskyy

    () (Indiana University)

  • Daniela Puzzello,

    () (Indiana University)

  • Steven Tucker

    () (University of Waikato)

  • Arlington Williams

    () (Indiana University)

Abstract

We report the results of an experiment designed to study the effect of asset-holdings caps on the formation of bubbles and crashes in laboratory asset markets. Bubbles and crashes are a quite robust phenomenon in experimental settings. Motivated by concentration control policies employed in the Chinese real-estate market, we explore the effects of permanent and short-term caps on individual asset holdings. We find that permanent caps greatly reduce positive bubbles, but tend to generate negative bubbles in later periods. Under short-term caps, on the other hand, we observe no negative bubble in later periods. Furthermore, we also observe no positive bubbles. Our results indicate that concentration control policies can be effective in eliminating bubbles if properly designed.

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File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/1213.pdf
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Bibliographic Info

Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 12/13.

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Length: 26 pages
Date of creation: 30 Nov 2012
Date of revision:
Handle: RePEc:wai:econwp:12/13

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Keywords: experimental asset markets; bubbles; concentration-control policies;

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