Price bubbles sans dividend anchors: Evidence from laboratory stock markets

Shinichi Hirota; Shyam Sunder

doi:10.1007/978-4-431-55501-8_13

Price bubbles sans dividend anchors: Evidence from laboratory stock markets

Shinichi Hirota^*, Shyam Sunder

^*Corresponding author for this work

School of Commerce

Research output: Chapter in Book/Report/Conference proceeding › Chapter

4 Citations (Scopus)

Abstract

We experimentally explore how investor decision horizons influence the formation of stock prices. We find that in long-horizon sessions, where investors collect dividends till maturity, prices converge to the fundamental levels derived from dividends through backward induction. In short-horizon sessions, where investors exit the market by receiving the price (not dividends), prices levels and paths become indeterminate and lose dividend anchors; investors tend to form their expectations of future prices by forward, not backward, induction. These laboratory results suggest that investors' short horizons and the consequent difficulty of backward induction are important contributors to the emergence of price bubbles.

Original language	English
Title of host publication	Behavioral Interactions, Markets, and Economic Dynamics
Subtitle of host publication	Topics in Behavioral Economics
Publisher	Springer Japan
Pages	357-395
Number of pages	39
ISBN (Electronic)	9784431555018
ISBN (Print)	9784431555001
DOIs	https://doi.org/10.1007/978-4-431-55501-8_13
Publication status	Published - 2015 Sept 12

Keywords

Backward induction
Market experiments
Short-term investors
Stock price bubbles

ASJC Scopus subject areas

Economics, Econometrics and Finance(all)
Business, Management and Accounting(all)
Psychology(all)

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10.1007/978-4-431-55501-8_13

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Price bubbles sans dividend anchors: Evidence from laboratory stock markets

Abstract

Keywords

ASJC Scopus subject areas

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