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Asset Bubbles without Dividends - An Experiment

Author

Listed:
  • Oechssler, Jörg

    (Department of Economics, University of Heidelberg)

  • Schmidt, Carsten

    (Sonderforschungsbereich 504, University of Mannheim)

  • Schnedler, Wendelin

    (Department of Economics, University of Heidelberg)

Abstract

Bubbles in asset markets have been documented in numerous experimental studies. However, all experiments in which bubbles occur pay dividends after each trading day. In this paper we study whether bubbles can occur in markets without dividends. We investigate the role of two features that are present in real markets. (1) The mere possibility that some traders may have inside information, and (2) the option to communicate with other traders. We find that bubbles can indeed occur without dividends. Surprisingly, communication turns out to be counterproductive for bubble formation, whereas the possibility of inside information is, as expected, crucial.

Suggested Citation

  • Oechssler, Jörg & Schmidt, Carsten & Schnedler, Wendelin, 2007. "Asset Bubbles without Dividends - An Experiment," Sonderforschungsbereich 504 Publications 07-01, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:07-01
    Note: We thank Tim Davies, Martin Dufwenberg, Charles Noussair, Charlie Plott, Andreas
    as

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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp07-01.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Michailova, Julija, 2010. "Development of the overconfidence measurement instrument for the economic experiment," MPRA Paper 26384, University Library of Munich, Germany.
    2. Palan, Stefan, 2010. "Digital options and efficiency in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 75(3), pages 506-522, September.
    3. Michailova, Julija, 2010. "Development of the overconfidence measurement instrument for the economic experiment," MPRA Paper 26384, University Library of Munich, Germany.
    4. Marina Fiedler, 2011. "Experience and Confidence in an Internet‐Based Asset Market Experiment," Southern Economic Journal, John Wiley & Sons, vol. 78(1), pages 30-52, July.
    5. Francesco Cordoni, 2022. "Multi-Asset Bubbles Equilibrium Price Dynamics," Papers 2206.01468, arXiv.org, revised Sep 2024.
    6. Maroš Servátka & George Theocharides, 2011. "Understanding Credit Risk: A Classroom Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(1), pages 79-86, January.
    7. Marina Fiedler, 2011. "Symposium: Experience and Confidence in an Internet-Based Asset Market Experiment," Southern Economic Journal, John Wiley & Sons, vol. 78(1), pages 30-52, July.
    8. Marina Fiedler, 2011. "Symposium: Experience and Confidence in an Internet-Based Asset Market Experiment," Southern Economic Journal, Southern Economic Association, vol. 78(1), pages 30-52, July.
    9. Charles N. Noussair & Gregers Richter & Jean-Robert Tyran, 2008. "Money Illusion and Nominal Inertia in Experimental Asset Markets," Discussion Papers 08-29, University of Copenhagen. Department of Economics.

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    More about this item

    Keywords

    asset markets; bubbles; experiment; mirages; dividends;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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