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Asset Bubbles without Dividends - An Experiment

Oechssler, Jörg and Schmidt, Carsten and Schnedler, Wendelin

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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.

Item Type: Working paper
Date Deposited: 12. May 2009 13:01
Date: 2007
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: asset markets , bubbles , experiment , mirages , dividends
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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