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Full-Text Articles in Economic Theory
A Classical Model Of Speculative Asset Price Dynamics, Sabiou M. Inoua, Vernon L. Smith
A Classical Model Of Speculative Asset Price Dynamics, Sabiou M. Inoua, Vernon L. Smith
ESI Working Papers
In retrospect, the experimental findings on competitive market behavior called for a revival of the old, classical, view of competition as a collective higgling and bargaining process (as opposed to price-taking behaviors) founded on reservation prices (in place of the utility function). In this paper, we specialize the classical methodology to deal with speculation, an important impediment to price stability. The model involves typical features of a field or lab asset market setup and lends itself to an experimental test of its specific predictions; here we use the model to explain three general stylized facts, well established both empirically and …
On Booms That Never Bust: Ambiguity In Experimental Asset Markets With Bubbles, Brice Corgnet, Roberto Hernán-González, Praveen Kujal
On Booms That Never Bust: Ambiguity In Experimental Asset Markets With Bubbles, Brice Corgnet, Roberto Hernán-González, Praveen Kujal
ESI Working Papers
We study the effect of ambiguity on the formation of bubbles and on the occurrence of crashes in experimental asset markets à la Smith, Suchanek, and Williams (1988). We extend their framework to an environment where the fundamental value of the asset is ambiguous. We show that, when the fundamental value is ambiguous, asset prices tend to be lower than when it is risky although bubbles form in both the ambiguous and the risky environments. Additionally, bubbles do not crash in the ambiguous case whereas they do so in the risky one. These findings regarding depressed prices and the absence …
Accounting Standards And Financial Market Stability: An Experimental Examination, Shengle Lin, Glenn Pfeiffer, David Porter
Accounting Standards And Financial Market Stability: An Experimental Examination, Shengle Lin, Glenn Pfeiffer, David Porter
ESI Working Papers
We examine the effect on asset mispricing of different accounting methods in an experimental asset market characterized by bubbles and crashes. In particular, we study three alternative asset value reporting treatments: (1) Fair Value (also known as Mark-to-Market – M2M), (2) Historical Cost (HC) and (3) Marked to Fundamental Value (M2F). In addition, each of these treatments is replicated in two different financial leverage conditions. In the first condition (No Loan) traders must purchase assets from their available cash balances without the option of borrowing. In the second condition, (Loan), traders are given the option of taking out loans based …