FUTURES MARKETS AND BUBBLE FORMATION IN EXPERIMENTAL ASSET MARKETS <link rid="c1">*</link>

We construct asset markets of the type studied in <link rid="b1">Smith et al. (1988) </link>, in which price bubbles and crashes are widely observed. In addition to a spot market, there are futures markets in operation, one maturing at the beginning of each period of the life of the asset. We find that when futures markets are present, bubbles do not occur in the spot markets. The futures markets seem to reduce the speculation and the decision errors that appear to give rise to price bubbles in experimental asset markets. Copyright 2006 Blackwell Publishing Ltd