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Margin, Short Selling, And Lotteries In Experimental Asset Markets

  • Lucy F. Ackert

    ()

    (Department of Economics and Finance, Michael J. Coles College of Business, Kennesaw State University and Federal Reserve Bank of Atlanta, Research Department)

  • Narat Charupat

    ()

    (Michael G. DeGroote School of Business, McMaster University)

  • Bryan K. Church

    ()

    (College of Management, Georgia Institute of Technology)

  • Richard Deaves

    ()

    (Michael G. DeGroote School of Business, McMaster University)

The robustness of bubbles and crashes in markets for assets with finite lives is perplexing. This paper reports the results of experimental asset markets in which participants trade two assets. In some markets, price bubbles form. In these markets, traders pay higher prices for the asset with lottery characteristics (i.e., a claim on a large, unlikely payoff). However, institutional design has a significant impact on deviations in prices from fundamental values, particularly for an asset with lottery characteristics. Price run-ups and crashes are moderated when traders finance purchases of the assets themselves and are allowed to short sell.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 73 (2006)
Issue (Month): 2 (October)
Pages: 419–436

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Handle: RePEc:sej:ancoec:v:73:2:y:2006:p:419-436
Contact details of provider: Web page: http://www.southerneconomic.org/

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