Price bubbles and crashes in experimental call markets

Learning through passive participation in asset market bubbles

“…In the Visualized market, experience drops RAD from 0.47 in Market 1 to 0.17 in Market 2, while passive participation results in an RAD of 0.29 in Market 2. Consistent with previous studies showing that experience decreases asset market bubbles (Haruvy et al 2007;Dufwenberg et al 2005;Smith et al 1988;Van Boening et al 1993), we find that RAD is significantly lower in Market 2 than in Market 1 in both Visualized and in Text treatments (Wilcoxon signed-rank test p value = 0.028 and 0.046, respectively, based on independent trading groups as the unit of observation).…”

“…Speculation is one rational reason for bubble formation, yet bubbles are still observed in a market where resale (and thus speculation) is not possible (Lei et al 2001). One of the most robust results in the asset market bubble literature is the effect of experience, defined as previous participation in a similar laboratory asset market, on reducing bubbles (Xia et al 2012;Haruvy et al 2007;Dufwenberg et al 2005;Smith et al 1988;Van Boening et al 1993;King et al 1993). 1 However, experience in one market does not reliably transfer to another, and bubbles may re-emerge after changes to market parameters (Hussam et al 2008).…”

Bubbles and Information in Continuous Double Auction and Call Market: An Experiment

“…15 In addition to Van Boening et al (1993), Lugovskyy et al (2011) studies experimental asset markets using the framework of Smith et al (1988) under both CDAs and CMs and reports that "In a setting employing double auctions and call markets as trading institutions, bubbles and crashes are a quite robust phenomenon. "…”

“…Asset trading was organized under either a (open-book) CDA or a (closed-book) CM. No trader was allowed to purchase on credit or to sell 14 For example, Van Boening et al (1993), Haruvy et al (2007), Lugovskyy et al (2011), Akiyama et al (2013, Akiyama et al (2014), andBaghestanian et al (2015) use a CM.…”

“…14 Van Boening et al (1993) reports that in the framework of Smith et al (1988), price bubbles are observed in the experimental markets under CMs, as well as under CDAs.…”