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The effect of short selling and borrowing on market prices and traders’ behavior

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  • Sébastien Duchêne

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UM - Université de Montpellier)

  • Eric Guerci

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UCA - Université Côte d'Azur - CNRS - Centre National de la Recherche Scientifique - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019))

  • Nobuyuki Hanaki

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UCA - Université Côte d'Azur - CNRS - Centre National de la Recherche Scientifique - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019))

  • Charles N. Noussair

    (University of Arizona)

Abstract

This paper studies the influence of allowing borrowing and short selling on market prices and traders' forecasts in an experimental asset market. We verify, although not statistically significantly so, that borrowing tends to increase asset overvaluation and price orecasts, while short selling tends to reduce these measures. We also show that a number of results on beliefs, traders' types, cognitive sophistication, and earnings obtained in earlier experimental studies in which borrowing and short selling are not possible, generalize to markets with borrowing and short sales.

Suggested Citation

  • Sébastien Duchêne & Eric Guerci & Nobuyuki Hanaki & Charles N. Noussair, 2018. "The effect of short selling and borrowing on market prices and traders’ behavior," Working Papers hal-01954924, HAL.
  • Handle: RePEc:hal:wpaper:hal-01954924
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01954924
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    References listed on IDEAS

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    Cited by:

    1. Brice Corgnet & Cary Deck & Mark DeSantis & David Porter, 2020. "Forecasting Skills in Experimental Markets: Illusion or Reality?," Working Papers 2020, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.

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    More about this item

    Keywords

    experimental asset market; bubble; margin buying; short sales;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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