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MARKET EFFICIENCY: EVIDENCE FROM A NO‐BUBBLE ASSET MARKET EXPERIMENT
Author(s) -
Lei Vivian,
Vesely Filip
Publication year - 2009
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2009.00444.x
Subject(s) - dividend , economics , asset (computer security) , crash , market efficiency , economic bubble , financial economics , bubble , phenomenon , monetary economics , econometrics , finance , physics , computer science , computer security , quantum mechanics , mechanics , programming language
. We report the results of an experiment that demonstrates that market experience is not necessary to eliminate bubbles in the type of asset markets studied in Smith et al . (1988). We introduce a pre‐market phase in which subjects experience a dividend flow themselves by literally observing and receiving dividends for 12 periods. The robust bubble–crash phenomenon never occurs in our experiment. Our results provide strong evidence that so long as a majority of the subjects have full understanding of the structure of the dividend, market efficiency can be ensured.