On booms that never bust: ambiguity in experimental asset markets with bubbles

Article


Corgnet, B., Hernan-Gonzalez, R. and Kujal, P. 2020. On booms that never bust: ambiguity in experimental asset markets with bubbles. Journal of Economic Dynamics and Control. 110. https://doi.org/10.1016/j.jedc.2019.103754
TypeArticle
TitleOn booms that never bust: ambiguity in experimental asset markets with bubbles
AuthorsCorgnet, B., Hernan-Gonzalez, R. and Kujal, P.
Abstract

We study the effect of ambiguity on the formation of bubbles and crashes in experimental asset markets à la Smith, Suchanek, and Williams (1988) by allowing for ambiguity in the fundamental value of the asset. Although bubbles form in both the ambiguous and the risky environments we find that asset prices tend to be lower when the fundamental value is ambiguous than when it is risky. Bubbles do not crash in the ambiguous case whereas they do so in the risky one. These findings, regarding depressed prices and the absence of crashes in the presence of ambiguity, are in line with recent theoretical work stressing the crucial role of ambiguity to account for surprisingly low equity prices (high returns) as well as herding in asset markets.

PublisherElsevier
JournalJournal of Economic Dynamics and Control
ISSN0165-1889
Publication dates
Online17 Sep 2019
Print01 Jan 2020
Publication process dates
Deposited20 Sep 2019
Accepted15 Sep 2019
Output statusPublished
Accepted author manuscript
License
Copyright Statement

© 2019. This author's accepted manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Digital Object Identifier (DOI)https://doi.org/10.1016/j.jedc.2019.103754
LanguageEnglish
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