Hostname: page-component-7b9c58cd5d-bslzr Total loading time: 0.001 Render date: 2025-03-16T09:01:41.896Z Has data issue: false hasContentIssue false
  • English
  • Français

Price Bubbles in Laboratory Asset Markets with Constant Fundamental Values

Published online by Cambridge University Press:  14 March 2025

Charles Noussair ,
Stephane Robin  and
Bernard Ruffieux
Charles Noussair*
Affiliation:
Department of Economics, Krannert School of Management, Purdue University, West Lafayette, IN 47907, USA
Stephane Robin*
Affiliation:
IREPD-ENSGI, Université de Grenoble 2, 46 Avenue Félix Viallet, Grenoble, 38031 Cedex 1, France
Bernard Ruffieux*
Affiliation:
IREPD-ENSGI, Université de Grenoble 2, 46 Avenue Félix Viallet, Grenoble, 38031 Cedex 1, France
*
email: noussair@mgmt.purdue.edu
email: Stephane.Robin@ensgi.inpg.fr
email: Bernard.Ruffieux@ensgi.inpg.fr
Get access Rights & Permissions [Opens in a new window]

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.

Keywords

asset marketbubbleexperimentspeculation

JEL classification

G12: Asset Pricing • Trading Volume • Bond Interest Rates C92: Laboratory, Group Behavior
Type
Research Article
Information
Experimental Economics , Volume 4 , Issue 1 , June 2001 , pp. 87 - 105
Copyright
Copyright © 2001 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ball, S. and Holt, C. (1998). “Classroom Games: Speculation and Bubbles in an Asset Market.” Journal of Economics Perspectives. 12(1), 207–218.CrossRefGoogle Scholar
Camerer, C. and Weigelt, . (1991). “Information Mirages in Experimental Asset Markets.” Journal of Business. 64(4), 463–493.CrossRefGoogle Scholar
Duxbury, D. (1995). “Experimental Asset Markets Within Finance.” Journal of Economic Surveys, 9(4), 331–371.CrossRefGoogle Scholar
Fisher, E. and Kelly, F. (2000). “Experimental Foreign Exchange Markets.” Pacific Economic Review. 5(3), 365387.CrossRefGoogle Scholar
King, R., Smith, V., Williams, A., and Van Boening, M. (1993). “The Robustness of Bubbles and Crashes in Experimental Stock Markets.” in Prigogine, I., Day, R., and Chen, P. (eds.), Nonlinear Dynamics and Evolutionary Economics: Oxford University Press. Oxford.Google Scholar
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.Google Scholar
Plott, C. and Gray, P. (1990). “The Multiple Unit Double Auction.” Journal of Economic Behavior and Organization. 13(2), 245–258.CrossRefGoogle Scholar
Porter, D. and Smith, V. (1995). “Futures Contracting and Dividend Uncertainty in Experimental Asset Markets.” Journal of Business. 68(4), 509–541.CrossRefGoogle Scholar
Sarin, R. and Weber, M. (1993). “The Effect of Ambiguity in a Market Setting.” Management Science. 39, 602–615.CrossRefGoogle Scholar
Smith, V. (1994). “Economics in the Laboratory.” Journal of Economic Perspectives. 8(1), 113–131.CrossRefGoogle Scholar
Smith, V., Suchanek, G., and Williams, A. (1988). “Bubbles, Crashes and Endogenous Expectations in Experimental Spot Asset Markets.” Econometrica. 56, 1119–1151.CrossRefGoogle Scholar
Smith, V., Van Boening, M., and Wellford, C. (2000). “Dividend Timing and Behavior in Laboratory Asset Markets.” Economic Theory. 16, 511–528.CrossRefGoogle Scholar
Sunder, S. (1995). “Experimental Asset Markets: A Survey.” in Kagel, J. and Roth, A. (eds.), The Handbook of Experimental Economics. Princeton University Press.Google Scholar
Van Boening, M., Williams, A., and LaMaster, S. (1993). “Price Bubbles and Crashes in Experimental Call Markets.” Economics Letters. 41, 179–185.CrossRefGoogle Scholar