Bubbles and information: An experiment

Matthias Sutter (), Jürgen Huber () and Michael Kirchler ()

Working Papers from Faculty of Economics and Statistics, University of Innsbruck

Abstract: We study whether information about imminent future dividends can abate bubbles in experimental asset markets. Using the seminal design of Smith et al. (1988) we find that markets where traders are asymmetrically informed about future dividends have smaller, and shorter, bubbles than markets with symmetrically informed or uninformed traders. Hence, fundamental values are better reflected in market prices – implying higher market efficiency – when some traders know more than others about the future prospects of an asset. We also find that asymmetric information has a similar abating impact on bubbles as when uninformed traders accumulate experience, though for different reasons.

Keywords: Bubbles; information; experiment (search for similar items in EconPapers)
JEL-codes: C91 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-cta and nep-exp
Date: 2008-09

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Persistent link: http://EconPapers.repec.org/RePEc:inn:wpaper:2008-20

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