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Cash inflow and trading horizon in asset markets

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  • Razen, Michael
  • Huber, Jürgen
  • Kirchler, Michael

Abstract

It is conjectured that one of the major ingredients of historic financial bubbles was the inflow of money in various forms. We run 36 laboratory asset markets to investigate the joint effect of cash inflow and trading horizon on price efficiency. We show that markets with cash inflow and long trading horizon exhibit bubbles and crashes. We also observe that markets with extended trading horizon but without cash inflow and markets with shorter trading horizon do not trigger bubbles. Finally, we report that beliefs about prices and, importantly, about (constant) fundamentals follow bubble patterns as well.

Suggested Citation

  • Razen, Michael & Huber, Jürgen & Kirchler, Michael, 2017. "Cash inflow and trading horizon in asset markets," European Economic Review, Elsevier, vol. 92(C), pages 359-384.
  • Handle: RePEc:eee:eecrev:v:92:y:2017:i:c:p:359-384
    DOI: 10.1016/j.euroecorev.2016.11.010
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    Cited by:

    1. Utz Weitzel & Christoph Huber & Florian Lindner & Jürgen Huber & Julia Rose & Michael Kirchler, 2018. "Bubbles and financial professionals," Working Papers 2018-04, Faculty of Economics and Statistics, University of Innsbruck, revised Mar 2018.

    More about this item

    Keywords

    Experimental finance; Cash inflow; Trading horizon; Backward induction; Asset market; Price efficiency;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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