Double Bubbles in Assets Markets with Multiple Generations

Cary Deck (), David Porter and Vernon Smith ()

Working Papers from Chapman University, Economic Science Institute

Abstract: We construct an asset market in a finite horizon overlapping-generations environment. Subjects are tested for comprehension of their fundamental value exchange environment, and then reminded during each of 25 periods of its declining new value. We observe price bubbles forming when new generations enter the market with additional liquidity and bursting as old generations exit the market and withdrawing cash. The entry and exit of traders in the market creates an M shaped double bubble price path over the life of the traded asset. This finding is significant in documenting that bubbles can reoccur within one extended trading horizon and, consistent with previous cross-subject comparisons, shows how fluctuations in market liquidity influence price paths. We also find that trading experience leads to price expectations that incorporate fundamental value.

Keywords: Asset Markets; Price Bubbles; Laboratory Experiments; Overlapping Generations (search for similar items in EconPapers)
JEL-codes: C91 D83 G12 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2011
New Economics Papers: this item is included in nep-dge, nep-exp and nep-mst
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Citations: View citations in EconPapers (14)

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Journal Article: Double Bubbles in Assets Markets With Multiple Generations (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:11-10

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