Palan Bubbles and Crashes in Experimental Asset Markets

1. Auflage 2009
ISBN: 978-3-642-02147-3
Verlag: Springer
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 171 Seiten

This book describes a laboratory experiment designed to test the causes and properties of bubbles in financial markets and explores the question whether it is possible to design markets which avoid such bubbles and crashes. In the experiment, subjects were given the opportunity to trade in a stock market modeled after the seminal work of Smith et al. (1988). To account for the increasing importance of online betting sites, subjects were also allowed to trade in a digital option market. The outcomes shed new light on how subjects form and update their expectations, placing special emphasis on the bounded rationality of investors. Various analytical bubble measures found in the literature are collected, calculated, classified and presented for the first time. The very interesting new bubble measures 'Dispersion Ratio', 'Overpriced Transactions' and 'Underpriced Transactions' are developed, making the book an important step towards the research goal of preventing bubbles and crashes in financial markets.

Autoren/Hrsg.

Palan, Stefan

Inhaltsverzeichnis

1;Acknowledgement;5
2;Contents;7
3;List of Abbreviations;9
4;List of Symbols;10
5;List of Figures;12
6;List of Tables;13
7;List of Examples3;13
8;Introduction and Motivation;14
8.1;1.1 Prediction Markets and Online Betting Sites;14
8.2;1.2 Bubbles and Crashes in Financial Markets;15
8.3;1.3 The Role of Derivative Markets in Informational Efficiency;18
8.4;1.4 Methodology;19
8.5;1.5 Scientific Relevance;21
9;Literature Review;23
9.1;2.1 Literature on Market Efficiency;23
9.2;2.1.1 Literature in Favor of the Efficient Market Hypothesis;23
9.3;2.1.2 Literature on Market Inefficiencies and Anomalies;25
9.4;2.1.3 Price Bubbles;26
9.5;2.2 Literature on Information and Derivative Markets;30
9.6;2.3 Literature on Prediction Markets, Market Structure, and the Double Auction Mechanism;33
9.7;2.4 Literature on Experiments in Economics;36
9.8;2.4.1 Expectations and Equilibrium Models in Experimental Asset Markets;38
9.9;2.4.2 The Role of Experience in Experimental Asset Markets;45
9.10;2.4.3 The Baseline Experimental Market and its Extensions;50
9.11;2.4.4 Alternative Treatment Designs;54
9.12;2.4.5 Efficiency in Experimental Asset Markets;75
10;Experimental Design and Methodology;78
10.1;3.1 Interface Design;80
10.2;3.2 Stock Market;83
10.3;3.3 Digital Option Market;84
10.4;3.4 Description of the Experimental Sessions 3.4.1 Subject Pool;91
10.5;3.4.2 Session Layout;93
11;Results;97
11.1;4.1 Experimental Results;97
11.2;4.1.1 Descriptive Statistics;97
11.3;4.1.2 Measures of Bubble Severity;99
11.4;4.1.3 Subject Performance;122
11.5;4.2 Interpretation of Behavioral Regularities 4.2.1 The Hypothesis of Observational Belief- Adaptation;126
11.6;4.2.2 The Haruvy, Lahav and Noussair (2007) Study;133
11.7;4.2.3 Bounded Rationality and Irrationality;136
12;Conclusion and Outlook;147
12.1;5.1 Summary of the Contribution;147
12.2;5.2 Outlook and Suggestions for Future Research;149
13;Appendices;153
13.1;6.1 Explanation of Bubble Measure Calculations;153
13.2;6.2 Detailed Price Plots;158
13.3;6.3 Statistical;166
13.4;Analysis of Questionnaire;166
13.5;Responses;166
14;Bibliography;168
15;Index;177
15.1;A;177