SFB 504 discussion paper 07-01

Jörg Oechssler
Department of Economics, University of Heidelberg
Grabengasse 14, D-69117 Heidelberg
oechssler@uni-hd.de

Carsten Schmidt
Sonderforschungsbereich 504, University of Mannheim
L 13, 15, D-68131 Mannheim
cschmidt@sfb504.uni-mannheim.de

Wendelin Schnedler
Department of Economics, University of Heidelberg
Grabengasse 14, D-69117 Heidelberg
wendelin.schnedler@awi.uni-heidelberg.de

Asset Bubbles without Dividends - An Experiment


Abstract:
Bubbles in asset markets have been documented in numerous experimental studies. However, all experiments in which bubbles occur pay dividends after each trading day. In this paper we study whether bubbles can occur in markets without dividends. We investigate the role of two features that are present in real markets. (1) The mere possibility that some traders may have inside information, and (2) the option to communicate with other traders. We find that bubbles can indeed occur without dividends. Surprisingly, communication turns out to be counterproductive for bubble formation, whereas the possibility of inside information is, as expected, crucial.
Keywords:
asset markets, bubbles, experiment, mirages, dividends
JEL-Classification:
C92, G12, D8
Project:
B8 Oechssler
Creation date:
2007-04-04
Publication Status
Downloadable version
http://www.sfb504.uni-mannheim.de/publications/dp07-01.pdf
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