Cash inflow and trading horizon in asset markets

Michael Razen, Jürgen Huber and Michael Kirchler

European Economic Review, 2017, vol. 92, issue C, 359-384

Abstract: It is conjectured that one of the major ingredients of historic financial bubbles was the inflow of money in various forms. We run 36 laboratory asset markets to investigate the joint effect of cash inflow and trading horizon on price efficiency. We show that markets with cash inflow and long trading horizon exhibit bubbles and crashes. We also observe that markets with extended trading horizon but without cash inflow and markets with shorter trading horizon do not trigger bubbles. Finally, we report that beliefs about prices and, importantly, about (constant) fundamentals follow bubble patterns as well.

Keywords: Experimental finance; Cash inflow; Trading horizon; Backward induction; Asset market; Price efficiency (search for similar items in EconPapers)
JEL-codes: C92 D84 G10 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:92:y:2017:i:c:p:359-384

DOI: 10.1016/j.euroecorev.2016.11.010

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