MARKET EFFICIENCY: EVIDENCE FROM A NO-BUBBLE ASSET MARKET EXPERIMENT

We report the results of an experiment that demonstrates that market experience is not necessary to eliminate bubbles in the type of asset markets studied in <link rid="b1">Smith et al. (1988) </link>. We introduce a pre-market phase in which subjects experience a dividend flow themselves by literally observing and receiving dividends for 12 periods. The robust bubble-crash phenomenon never occurs in our experiment. Our results provide strong evidence that so long as a majority of the subjects have full understanding of the structure of the dividend, market efficiency can be ensured. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Asia Pty Ltd