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Design-features of bubble-prone experimental asset markets with a constant FV

Author

Listed:
  • Christoph Huber

    (University of Innsbruck)

  • Parampreet C. Bindra

    (University of Innsbruck)

  • Daniel Kleinlercher

    (University of Innsbruck)

Abstract

Experimental asset markets with a constant fundamental value ($$\mathrm {\textsc {fv}}$$FV) have grown in importance in recent years. A methodological examination of the robustness of experimental results in such a setting which has been shown to produce bubbles, however, is lacking. In a laboratory experiment with 280 subjects, we investigate whether specific design features are sufficient to influence experimental results. In detail, we (1) vary the visual representation of the price chart, and (2) provide subjects with full information about the FV process. We find overvaluation and bubble formation to be reduced when trading prices are displayed at the upper end of the price chart. Surprisingly, we do not find any effects when subjects have full information about the FV process.

Suggested Citation

  • Christoph Huber & Parampreet C. Bindra & Daniel Kleinlercher, 2019. "Design-features of bubble-prone experimental asset markets with a constant FV," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 5(2), pages 197-209, December.
    • Handle: RePEc:spr:jesaex:v:5:y:2019:i:2:d:10.1007_s40881-019-00061-5
    DOI: 10.1007/s40881-019-00061-5
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    More about this item

    Keywords

    Experimental finance; Asset markets; Price efficiency; Bubbles; Experimental design;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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