Asset Bubbles without Dividends - An Experiment
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.
|Date of creation:||04 Apr 2007|
|Date of revision:|
|Note:||We thank Tim Davies, Martin Dufwenberg, Charles Noussair, Charlie Plott, Andreas|
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