The dynamics of trader motivations in asset bubbles

G. Caginalp and V. Ilieva

Journal of Economic Behavior & Organization, 2008, vol. 66, issue 3-4, 641-656

Abstract: Asset market experiments are analyzed by distinguishing participants who are net bidders versus net offerers when the trading price is above fundamental value. We find evidence that the cash supply of the bidders diminishes and the cash supply of the offerers increases as the bubble forms. This suggests that the bubble is fueled by the cash of the momentum players and the reversal is caused by inadequate cash in their possession. The experimental data is also analyzed using asset flow difference equations with the result that both bidders are strongly influenced and offerers (surprisingly) are moderately influenced by price trend.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:66:y:2008:i:3-4:p:641-656

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