Keywords
asset market, economic bubble, educational method, experimental market
Disciplines
Accounting | Finance and Financial Management
Abstract
Our contribution to the literature on asset price bubbles is that we seek to determine whether bubbles can be prevented through reading articles about bubbles. We created three experimental asset markets to evaluate the efficacy of readings on the creation of a bubble. One group read a historical account of the impacts of a collapsing land bubble on a small Iowa town; one group read a standard definition of a bubble, similar to a college textbook; the control group read an unrelated reading on bonds. We conducted twelve rounds of trading and found that the participants in all groups created a bubble, as measured by a T-test comparing average trading prices to expected value of assets. Interestingly, the group that read the historic account traded assets at the most extreme prices and the control group traded at prices closest to expected value, indicating that, if anything, the story exacerbated the creation of a bubble. We encountered a few constraints and complications, namely small sample size and potential problems with the verbal double auction pricing mechanism, which may merit additional research to verify findings.
ScholarWorks Citation
Weller, Matt, "Asset Market Bubbles Cannot be Prevented through Reading" (2010). Honors Projects. 23.
https://scholarworks.gvsu.edu/honorsprojects/23
