BUBBLES, CRASHES, AND ENDOGENOUS UNCERTAINTY IN LINKED ASSET AND PRODUCT MARKETS

In laboratory asset markets, subjects trade shares of a firm whose profits in a linked product market determine dividends. Treatments vary whether dividend information is revealed once per period or in real time and whether the firm is controlled by a profit-maximizing robot or human subject. The la...

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Bibliographic Details
Published inInternational economic review (Philadelphia) Vol. 57; no. 1; pp. 155 - 176
Main Authors Jaworski, Taylor, Kimbrough, Erik O.
Format Journal Article
LanguageEnglish
Published Philadelphia Blackwell Publishing Ltd 01.02.2016
Wiley Periodicals, Inc
Subjects
Asset markets
Comparative analysis
Dividends
Economic bubbles
Economic crisis
Economic expectations
Economic uncertainty
Fundamental value
Laboratories
Market prices
Monopoly
Prices
Product markets
Profitability
Securities markets
Studies
Online AccessGet full text
ISSN0020-6598
1468-2354
DOI10.1111/iere.12151

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Summary:In laboratory asset markets, subjects trade shares of a firm whose profits in a linked product market determine dividends. Treatments vary whether dividend information is revealed once per period or in real time and whether the firm is controlled by a profit-maximizing robot or human subject. The latter variation induces uncertainty about firm behavior, bridging the gap between laboratory and field markets. Our data replicate well-known features of laboratory asset markets (e.g., bubbles), suggesting these are robust to a market-based dividend process. Compared to a sample of previous experiments, both real-time information revelation and endogenous uncertainty impede the bubble-mitigating impact of experience.
Bibliography:ark:/67375/WNG-DHXKM8H1-6
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Additional Appendices
Social Sciences and Humanities Research Council of Canada
International Foundation for Research in Experimental Economics Small Grants Program
ArticleID:IERE12151
ekimbrough@gmail.com
An earlier version of this article was circulated under the title “An Experimental Examination of Asset Pricing under Market Uncertainty.” The authors thank the International Foundation for Research in Experimental Economics Small Grants Program for providing funding for a preliminary version of this project and providing useful comments on our ideas, and we thank the Economic Science Institute at Chapman University for the use of their laboratory during those early stages. We also thank the Social Sciences and Humanities Research Council of Canada for funding. We received numerous helpful comments from three anonymous referees and the editor, Hanming Fang, as well as Cary Deck, Martin Dufwenberg, Shengle Lin, Ryan Oprea, Dave Porter, Andrew Smyth, and participants in seminars at the Southern Economic Association Annual Conference and the Luxembourg School of Finance. We acknowledge the able assistance of Kyle Bjordahl and Andriy Baranskyy for programming (and reprogramming) our software, and we thank Yiqing (Phyllis) Zhou for excellent research assistance. All remaining errors are our own. Please address correspondence to: Erik O. Kimbrough, Department of Economics, Simon Fraser University, 8888 University Drive ‐ WMC 4663, Burnaby, BC V5A 1S6, Canada. E‐mail
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ISSN:0020-6598
1468-2354
DOI:10.1111/iere.12151