Multi-Asset Bubbles Equilibrium Price Dynamics

Abstract

The price-bubble and crash process formation is theoretically investigated in a two-asset equilibrium model. Sufficient and necessary conditions are derived for the existence of average equilibrium price dynamics of different agent-based models, where agents are distinguished in terms of factor and investment trading strategies. In line with experimental results, we show that assets with a positive average dividend, i.e., with a strictly declining fundamental value, display at the equilibrium price the typical hump-shaped bubble observed in experimental asset markets. Moreover, a misvaluation effect is observed in the asset with a constant fundamental value, triggered by the other asset that displays the price bubble shape when a sharp price decline is exhibited at the end of the market.

Simulation-driven experimental hypotheses and design: a study of price impact and bubbles

“…We also use the simulation approach to calibrate our experimental design. Furthermore, Cordoni 39 shows how the price-bubble dynamics of the (simulated) experimental results presented herein are robust and persistent to the parameter choice of the asset-price models.…”