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

Christoph Huber; Parampreet C Bindra; Daniel Kleinlercher

doi:10.1007/s40881-019-00061-5

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

J Econ Sci Assoc. 2019;5(2):197-209. doi: 10.1007/s40881-019-00061-5. Epub 2019 Mar 26.

Authors

Christoph Huber¹, Parampreet C Bindra², Daniel Kleinlercher¹

Affiliations

¹ 1Department of Banking and Finance, University of Innsbruck, Universitätsstrasse 15, 6020 Innsbruck, Austria.
² 2Department of Economics, University of Innsbruck, Universitätsstrasse 15, 6020 Innsbruck, Austria.

Abstract

Experimental asset markets with a constant fundamental value ( $F V$ ) 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.

Keywords: Asset markets; Bubbles; Experimental design; Experimental finance; Price efficiency.