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Cash Inflows and Bubbles in Asset Markets with Constant Fundamental Values

Author

Listed:
  • Charles Noussair

    (Tilburg University)

  • Steven Tucker

    (University of Waikato)

Abstract

Kirchler et al. (2012) make a number of contributions to experimental research on asset markets. One of their findings is that the levels of cash holdings of traders do not affect asset prices when fundamentals follow a constant time trajectory. We report a new experiment in which we replicate their findings for the specific cash levels they use. However, a new treatment is also included, in which cash holdings are at high levels early in the life of the asset. In this treatment, overpricing and market bubbles are observed, indicating that greater cash levels are indeed associated with higher prices, even when fundamental values are constant over time.

Suggested Citation

  • Charles Noussair & Steven Tucker, 2014. "Cash Inflows and Bubbles in Asset Markets with Constant Fundamental Values," Working Papers in Economics 14/03, University of Waikato.
    • Handle: RePEc:wai:econwp:14/03
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    experimental asset markets; bubbles;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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