Abstract
We construct asset markets that are similar to those studied by Smith, Suchanek and Williams (Econometrica. 56, 1119–1151) in which bubbles and crashes tended to occur. The main difference between the markets studied here and those studied by Smith et al. is that in the markets studied here, the fundamental value of the asset is constant over the entire life of the asset. In four of the eight sessions reported here, we observe bubbles, which are prices considerably higher than fundamental values. The data suggest that the frequent payment of dividends is a major cause of bubble formation. The property that the fundamental value remains constant over the course of the trading horizon is not sufficient to eliminate the possibility of a bubble.
Similar content being viewed by others
References
Ball, S. and Holt, C. (1998). “Classroom Games: Speculation and Bubbles in an Asset Market.” Journal of Economics Perspectives. 12(1), 207–218.
Camerer, C. and Weigelt. (1991). “Information Mirages in Experimental Asset Markets.” Journal of Business. 64(4), 463–493.
Duxbury, D. (1995). “Experimental Asset MarketsWithin Finance.” Journal of Economic Surveys, 9(4), 331–371.
Fisher, E. and Kelly, F. (2000). “Experimental Foreign Exchange Markets.” Pacific Economic Review. 5(3), 365–387.
King R., Smith, V., Williams, A., and Van Boening, M. (1993). “The Robustness of Bubbles and Crashes in Experimental Stock Markets.” in I. Prigogine, R. Day, and P. Chen (eds.), Nonlinear Dynamics and Evolutionary Economics: Oxford University Press. Oxford
Lei, V., Noussair, C., and Plott, C. (2001). “Non-Speculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality.” Econometrica, forthcoming.
Plott, C. and Gray, P. (1990). “The Multiple Unit Double Auction.” Journal of Economic Behavior and Organization. 13(2), 245–258.
Porter, D. and Smith, V. (1995). “Futures Contracting and Dividend Uncertainty in Experimental Asset Markets.” Journal of Business. 68(4), 509–541.
Sarin, R. and Weber, M. (1993). “The Effect of Ambiguity in a Market Setting.” Management Science. 39, 602–615.
Smith, V. (1994). “Economics in the Laboratory.” Journal of Economic Perspectives. 8(1), 113–131.
Smith, V., Suchanek, G., and Williams, A. (1988). “Bubbles, Crashes and Endogenous Expectations in Experimental Spot Asset Markets.” Econometrica. 56, 1119–1151.
Smith, V., Van Boening, M., and Wellford, C. (2000). “Dividend Timing and Behavior in Laboratory Asset Markets.” Economic Theory. 16, 511–528.
Sunder, S. (1995). “Experimental Asset Markets: A Survey.” in J. Kagel and A. Roth (eds.), The Handbook of Experimental Economics. Princeton University Press.
Van Boening, M., Williams, A., and LaMaster, S. (1993). “Price Bubbles and Crashes in Experimental Call Markets.” Economics Letters. 41, 179–185.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Noussair, C., Robin, S. & Ruffieux, B. Price Bubbles in Laboratory Asset Markets with Constant Fundamental Values. Experimental Economics 4, 87–105 (2001). https://doi.org/10.1023/A:1011445522861
Issue Date:
DOI: https://doi.org/10.1023/A:1011445522861