Asset bubbles without dividends : an experiment

Jörg Oechssler ; Carsten Schmidt ; Wendelin Schnedler

Bubbles in asset markets have been documented in numerous experimental studies. However, all experiments in which bubbles occur pay dividends after each trading day. In this paper we study whether bubbles can occur in markets without dividends. We investigate the role of two features that are present in real markets. (1) The mere possibility that some traders may have inside information, and (2) the option to communicate with other traders. We find that bubbles can indeed occur without dividends. Surprisingly, communication turns out to be counterproductive for bubble formation, whereas the possibility of inside information is, as expected, crucial.

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Year of publication:	April 3, 2007
Authors:	Oechssler, Joerg
Other Persons:	Schmidt, Carsten (contributor) ; Schnedler, Wendelin (contributor)
Publisher:	Heidelberg : Universitätsbibliothek der Universität Heidelberg Heidelberg : University of Heidelberg, Department of Economics
Subject:	asset markets \| bubbles \| experiment \| mirages \| dividends \| Finanzmarkt \| Financial market \| Spekulationsblase \| Bubbles \| Dividende \| Dividend \| Experiment \| Theorie \| Theory