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Margin, Short Selling, and Lotteries in Experimental Asset Markets
Author(s) -
Ackert Lucy F.,
Charupat Narat,
Church Bryan K.,
Deaves Richard
Publication year - 2006
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2006.tb00779.x
Subject(s) - asset (computer security) , lottery , margin (machine learning) , economics , stochastic game , monetary economics , financial economics , business , microeconomics , computer security , machine learning , computer science
The robustness of bubbles and crashes in markets for assets with finite lives is perplexing. This paper reports the results of experimental asset markets in which participants trade two assets. In some markets, price bubbles form. In these markets, traders pay higher prices for the asset with lottery characteristics (i.e., a claim on a large, unlikely payoff). However, institutional design has a significant impact on deviations in prices from fundamental values, particularly for an asset with lottery characteristics. Price run‐ups and crashes are moderated when traders finance purchases of the assets themselves and are allowed to short sell.