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Capital constraints and asset bubbles: An experimental study

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  • Coppock, Lee A.
  • Harper, Daniel Q.
  • Holt, Charles A.

Abstract

This paper evaluates the effects of credit constraints in an asset market experiment with present value considerations induced by interest payments on cash. All markets exhibit price bubbles, with peak prices exceeding the present value of dividends and redemptions by 30–130%. Starting with a baseline condition (low income, tight credit), a relaxation of credit constraints generates significantly higher price bubbles. A price increase of similar magnitude results from an increase in exogenous income, holding credit tightness constant.

Suggested Citation

  • Coppock, Lee A. & Harper, Daniel Q. & Holt, Charles A., 2021. "Capital constraints and asset bubbles: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 75-88.
  • Handle: RePEc:eee:jeborg:v:183:y:2021:i:c:p:75-88
    DOI: 10.1016/j.jebo.2020.10.024
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    More about this item

    Keywords

    Asset prices; Bubbles; Speculation; Leverage; Margin requirements;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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