Experimental Economics

, Volume 13, Issue 3, pp 284–298

Bubble measures in experimental asset markets

Article

DOI: 10.1007/s10683-010-9241-9

Cite this article as:
Stöckl, T., Huber, J. & Kirchler, M. Exp Econ (2010) 13: 284. doi:10.1007/s10683-010-9241-9

Abstract

We review bubble measures which are commonly used in the experimental asset market literature. It seems sensible to require that measures of mispricing should (i) relate the fundamental value and price, (ii) be monotone in the difference between fundamental value and price, and (iii) be independent of the total number of periods and the absolute level of fundamental value. We show that none of the measures currently used fulfills all these criteria. To facilitate comparability across different experimental settings with different parameterizations we propose two alternative measures which fulfill all evaluation criteria. The measure for mispricing, RAD (relative absolute deviation), is calculated by averaging absolute differences between the (volume-weighted) mean price and the fundamental value across all periods and normalizing it with the absolute value of the average FV of the market. The measure for overvaluation, RD (relative deviation), is calculated analogously, but uses raw difference between (volume-weighted) mean prices and fundamental values. Hence, it provides information on whether the mispricing stems from over- or undervaluation of the asset.

Keywords

Experimental economics Asset market Bubble Bubble measure 

JEL Classification

C90 D84 G14 

Copyright information

© Economic Science Association 2010

Authors and Affiliations

  • Thomas Stöckl
    • 1
  • Jürgen Huber
    • 1
  • Michael Kirchler
    • 1
    • 2
  1. 1.Department of Banking and FinanceInnsbruck University School of ManagementInnsbruckAustria
  2. 2.Centre for FinanceUniversity of GothenburgGothenburgSweden

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