Cash inflow and trading horizon in asset markets

Razen, Michael; Huber, Jürgen; Kirchler, Michael

doi:10.1016/j.euroecorev.2016.11.010

Cited by 31 publications

(30 citation statements)

References 51 publications

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“…This finding holds for the bubble-driver treatments but not for the bubble-moderator treatments which show similar levels of high efficiency across both subject pools. Following the definition of Razen et al (2017) we find that 25 percent of pro-fessional markets and 58 percent of student markets are classified as bubble markets in the two bubble-driver treatments. In the bubble-moderator treatments none of the markets populated by professionals and only four percent of all student markets exhibit bubble patterns.…”

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confidence: 88%

“…All this information is public knowledge. With these market characteristics we test the prominent bubble-driver capital inflow (Brunnermeier and Schnabel, 2016;Holt et al, 2017;Razen et al, 2017).…”

Section: The Marketmentioning

confidence: 99%

“…As in Haruvy et al (2007), Kirchler et al (2015), and Razen et al (2017), we elicit subjects' beliefs about future market prices in each period. Specifically, at the beginning of each period t, subjects are asked to predict average period prices for the three upcoming periods.…”

Section: The Marketmentioning

confidence: 99%

“…Second, although the fundamental value is transparent, the design has been shown to be able to consistently produce price bubbles (Smith et al, 2014;Holt et al, 2017), which provides room for different bubble-driver and -moderator treatments to take effect. 3 We administered two classical bubble-driver treatments from the literature by either (i) implementing a high initial cash to asset-value ratio (CA-Ratio), i.e., a high initial level of the monetary supply (cash) relative to the asset value in the market (see Caginalp et al, 1998Caginalp et al, , 2001 or (ii) allowing capital inflows and thereby creating an increasing CA-Ratio over time (Kirchler et al, 2012;Razen et al, 2017). The CA-Ratio is calculated as the total amount of money in the market over the product of shares outstanding and the fundamental value (FV).…”

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confidence: 99%

“…We also administered two treatments implementing classical bubble-moderating factors by either (iii) allowing short sales (Ackert et al, 2006;Haruvy and Noussair, 2006) or (iv) providing a low initial cash to asset-value ratio with no capital inflow over time (Kirchler et al, 2015;Razen et al, 2017). Following the theoretical literature, market frictions like short-sale constraints can lead to bubble formation even in finite horizon models with asymmetric information (see, e.g., Allen and Gorton, 1993;Brunnermeier, 2001Brunnermeier, , 2009).…”

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confidence: 99%

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Bubbles and Financial Professionals

Weitzel

Huber

et al. 2018

SSRN Journal

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The efficiency of financial markets and their potential to produce bubbles are central topics in academic and professional debates. Yet, surprisingly little is known about the contribution of financial professionals to price efficiency. To close this gap, we run 86 experimental markets with 294 professionals and 384 students. We report that professional markets with bubble-drivers-capital inflows or high initial capital supply-are susceptible to bubbles, but they are significantly more efficient than student markets. In a survey with 245 professionals and students we show that cognitive skills and risk attitudes do not explain subject pool differences in bubble formation.

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mentioning

confidence: 88%

Section: The Marketmentioning

confidence: 99%

Section: The Marketmentioning

confidence: 99%

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confidence: 99%

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confidence: 99%

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Bubbles and Financial Professionals

Weitzel

Huber

et al. 2018

SSRN Journal

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

2019

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Experimental asset markets with a constant fundamental value () 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.Electronic supplementary materialThe online version of this article (10.1007/s40881-019-00061-5) contains supplementary material, which is available to authorized users.

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