On Booms That Never Bust: Ambiguity in Experimental Asset Markets with Bubbles

Brice Corgnet, Roberto Hernán-Gonzalez and Praveen Kujal
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Roberto Hernán-Gonzalez: UBFC - Université Bourgogne Franche-Comté [COMUE]
Authors registered in the RePEc Author Service: Roberto Hernán González

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Abstract: We study the effect of ambiguity on the formation of bubbles and on the occurrence of crashes in experimental asset markets à la Smith, Suchanek, and Williams (1988). We extend their framework to an environment where the fundamental value of the asset is ambiguous. We show that, when the fundamental value is ambiguous, asset prices tend to be lower than when it is risky although bubbles form in both the ambiguous and the risky environments. Additionally, 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)
Date: 2018
New Economics Papers: this item is included in nep-exp
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Related works:
Journal Article: 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 (2020)
Working Paper: On Booms That Never Bust: Ambiguity in Experimental Asset Markets with Bubbles (2018)
Working Paper: On Booms That Never Bust: Ambiguity in Experimental Asset Markets with Bubbles (2018)
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