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|
|Faculties / Institutes:||The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics|
|Uncontrolled Keywords:||asset markets , bubbles , experiment , mirages , dividends|
|Schriftenreihe ID:||Discussion Paper Series / University of Heidelberg, Department of Economics|