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Can Concentration Control Policies Eliminate Bubbles?

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

Working Papers in Economics from University of Waikato

Abstract: We report the results of an experiment designed to study the effect of asset-holdings caps on the formation of bubbles and crashes in laboratory asset markets. Bubbles and crashes are a quite robust phenomenon in experimental settings. Motivated by concentration 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, we observe no negative bubble in later periods. Furthermore, we also observe no positive bubbles. Our results indicate that concentration control policies can be effective in eliminating bubbles if properly designed.

Keywords: experimental asset markets; bubbles; concentration-control policies (search for similar items in EconPapers)
JEL-codes: C90 D03 G02 G12 G18 (search for similar items in EconPapers)
Date: 2012-11-30
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