On the ingredients for bubble formation: Informed traders and communication

Jörg Oechssler, Carsten Schmidt and Wendelin Schnedler

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 11, 1831-1851

Abstract: Bubbles in asset markets have been documented in numerous experiments. Most experiments in which bubbles occur feature a declining fundamental value. This feature has been criticized for being atypical of real financial markets. Here, we experimentally study other ingredients for bubble formation that are common in such markets, namely the existence of inside information and communication among traders. We find that bubbles and mirages can occur if these additional ingredients are present. In particular, the mere possibility that some traders are better informed than others can create bubbles. Surprisingly, communication turns out to be counterproductive for bubble formation.

Keywords: Asset markets; Bubbles; Experiment; Mirages; Dividends (search for similar items in EconPapers)
JEL-codes: C92 D8 G12 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:35:y:2011:i:11:p:1831-1851

DOI: 10.1016/j.jedc.2011.05.009

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