The Effect of Short Selling on Bubbles and Crashes in Experimental Spot Asset Markets
A series of experiments illustrate that relaxing short-selling constraints lowers prices in experimental asset markets, but does not induce prices to track fundamentals. We argue that prices in experimental asset markets are influenced by restrictions on short-selling capacity and limits on the cash available for purchases. Restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner. A simulation model, based on DeLong et al. (1990) , generates average price patterns that are similar to the observed data. Copyright 2006 by The American Finance Association.
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Volume (Year): 61 (2006)
Issue (Month): 3 (06)
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