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Asset-holdings caps and bubbles in experimental asset markets

Volodymyr Lugovskyy (), Daniela Puzzello (), Steven Tucker () and Arlington Williams ()

Journal of Economic Behavior & Organization, 2014, vol. 107, issue PB, 781-797

Abstract: We report the results of an experiment designed to study the effect of individual asset-holdings restrictions on the formation of bubbles and crashes in laboratory asset markets. Bubbles and crashes are a quite robust phenomenon in experimental settings. Motivated by demand-control policies employed in the Chinese real-estate market, we explore the effects of permanent and short-term caps on individual asset holdings. We find that permanent caps greatly reduce positive bubbles, but tend to generate negative bubbles in later periods. Under short-term caps, on the other hand, neither positive nor negative bubbles are observed. Our results indicate that asset-holdings caps can be effective in eliminating bubbles if properly designed.

Keywords: Experimental asset markets; Bubbles; Asset-holdings caps (search for similar items in EconPapers)
JEL-codes: C90 D03 G02 G12 G18 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jebo.2014.04.021

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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