|Publicerad i||European Economic Review|
Centrum för finans
Institutionen för nationalekonomi med statistik
|Ämnesord||Experimental finance, Cash inflow, Trading horizon, Backward induction, Asset market, Price, rational-expectations, price efficiency, security markets, stock-prices, bubbles, crashes, information, risk, behavior, traders, Business & Economics|
|Ämneskategorier||Ekonomi och näringsliv|
It is conjectured that one of the major ingredients of historic financial bubbles was the inflow of money in various forms. We run 36 laboratory asset markets to investigate the joint effect of cash inflow and trading horizon on price efficiency. We show that markets with cash inflow and long trading horizon exhibit bubbles and crashes. We also observe that markets with extended trading horizon but without cash inflow and markets with shorter trading horizon do not trigger bubbles. Finally, we report that beliefs about prices and, importantly, about (constant) fundamentals follow bubble patterns as well.