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Bubbles and information: An experiment

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  • Matthias Sutter
  • Jürgen Huber
  • Michael Kirchler

Abstract

We study whether information about imminent future dividends can abate bubbles in experimental asset markets. Using the seminal design of Smith et al. (1988) we find that markets where traders are asymmetrically informed about future dividends have smaller, and shorter, bubbles than markets with symmetrically informed or uninformed traders. Hence, fundamental values are better reflected in market prices - implying higher market efficiency - when some traders know more than others about the future prospects of an asset. We also find that asymmetric information has a similar abating impact on bubbles as when uninformed traders accumulate experience, though for different reasons.

Suggested Citation

  • Matthias Sutter & Jürgen Huber & Michael Kirchler, 2008. "Bubbles and information: An experiment," Working Papers 2008-20, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2008-20
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    References listed on IDEAS

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    More about this item

    Keywords

    Bubbles; information; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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