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On booms that never bust: Ambiguity in experimental asset markets with bubbles

Brice Corgnet (), Roberto Hernán-González and Praveen Kujal ()
Authors registered in the RePEc Author Service: Roberto Hernán González ()

Journal of Economic Dynamics and Control, 2020, vol. 110, issue C

Abstract: We study the effect of ambiguity on the formation of bubbles and crashes in experimental asset markets à la Smith, Suchanek, and Williams (1988) by allowing for ambiguity in the fundamental value of the asset. Although bubbles form in both the ambiguous and the risky environments we find that asset prices tend to be lower when the fundamental value is ambiguous than when it is risky. Bubbles do not crash in the ambiguous case whereas they do so in the risky one. These findings, regarding depressed prices and the absence of crashes in the presence of ambiguity, are in line with recent theoretical work stressing the crucial role of ambiguity to account for surprisingly low equity prices (high returns) as well as herding in asset markets.

Keywords: Experimental asset markets; Bubbles; Ambiguity (search for similar items in EconPapers)
JEL-codes: C92 D84 G14 G41 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: On booms that never bust: Ambiguity in experimental asset markets with bubbles (2020)
Working Paper: On Booms That Never Bust: Ambiguity in Experimental Asset Markets with Bubbles (2018) Downloads
Working Paper: On Booms That Never Bust: Ambiguity in Experimental Asset Markets with Bubbles (2018) Downloads
Working Paper: On Booms That Never Bust: Ambiguity in Experimental Asset Markets with Bubbles (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:110:y:2020:i:c:s0165188919301514

DOI: 10.1016/j.jedc.2019.103754

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