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Can Concentration Control Policies Eliminate Bubbles?

Author

Listed:
  • Volodymyr Lugovskyy

    (Indiana University)

  • Daniela Puzzello,

    (Indiana University)

  • Steven Tucker

    (University of Waikato)

  • Arlington Williams

    (Indiana University)

Abstract

We report the results of an experiment designed to study the effect of asset-holdings caps on the formation of bubbles and crashes in laboratory asset markets. Bubbles and crashes are a quite robust phenomenon in experimental settings. Motivated by concentration control policies employed in the Chinese real-estate market, we explore the effects of permanent and short-term caps on individual asset holdings. We find that permanent caps greatly reduce positive bubbles, but tend to generate negative bubbles in later periods. Under short-term caps, on the other hand, we observe no negative bubble in later periods. Furthermore, we also observe no positive bubbles. Our results indicate that concentration control policies can be effective in eliminating bubbles if properly designed.

Suggested Citation

  • Volodymyr Lugovskyy & Daniela Puzzello, & Steven Tucker & Arlington Williams, 2012. "Can Concentration Control Policies Eliminate Bubbles?," Working Papers in Economics 12/13, University of Waikato.
    • Handle: RePEc:wai:econwp:12/13
    as

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    File URL: https://repec.its.waikato.ac.nz/wai/econwp/1213.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Giovanni Giusti & Janet Hua Jiang & Yiping Xu, 2014. "Interest on Cash, Fundamental Value Process and Bubble Formation on Experimental Asset Markets," Staff Working Papers 14-18, Bank of Canada.

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    More about this item

    Keywords

    experimental asset markets; bubbles; concentration-control policies;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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