League-Table Incentives and Price Bubbles in Experimental Asset Markets

Stephen Cheung and Andrew Coleman
Additional contact information
Andrew Coleman: University of Sydney

No 5704, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study experimental markets in which participants face incentives modeled upon those prevailing in markets for managed funds. Each participant's portfolio is periodically evaluated at market value and ranked in a league table according to short-term paper returns. Those who rank highly attract a larger share of new fund inflows. Under conditions in which prices are close to intrinsic value, the effect of incentives is mild. However under conditions in which markets are prone to bubble, mispricing is greatly exacerbated by incentives. Even in experienced markets, prices climb to levels clearly indicative of speculation and do not always crash back.

Keywords: tournament incentives; managed funds markets; price bubbles; league tables; asset market experiments (search for similar items in EconPapers)
JEL-codes: C92 G12 M52 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2011-05
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - revised version published as 'Relative Performance Incentives and Price Bubbles in Experimental Asset Markets' in: Southern Economic Journal, 2014, 81 (2), 345-363

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Related works:
Working Paper: League-Table Incentives and Price Bubbles in Experimental Asset Markets (2012)
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