TY - JOUR
T1 - Speculation, money supply and price indeterminacy in financial markets
T2 - An experimental study
AU - Hirota, Shinichi
AU - Huber, Juergen
AU - Stöckl, Thomas
AU - Sunder, Shyam
N1 - Funding Information:
We are grateful to three anonymous reviewers for valuable comments and suggestions. We thank Hajime Katayama, Kohei Kawamura, Yusuke Osaki and participants at the Yale School of Management Faculty Workshop, seminars at Tinbergen Institute, Aoyamagakuin, Hitotsubashi, the Experimental Finance Conference 2014 and 2016, NFA meeting 2015, London School of Economics, Barcelona GSE Summer Forum 2016, and Theoretical and Experimental Monetary Economics Conference 2018 for helpful comments. We thank Elizabeth Viloudaki for careful copy editing. Financial support from the Austrian National Bank (OeNB grant 14953, Huber), JSPS KAKENHI (Grant number 26590052 , 17K03820 , and 15H01958 , Hirota), UniCredit (Modigliani Research Grant, 4th edition, Stöckl) and Yale University (Sunder) are gratefully acknowledged. The experimental data are available from the authors.
Funding Information:
We are grateful to three anonymous reviewers for valuable comments and suggestions. We thank Hajime Katayama, Kohei Kawamura, Yusuke Osaki and participants at the Yale School of Management Faculty Workshop, seminars at Tinbergen Institute, Aoyamagakuin, Hitotsubashi, the Experimental Finance Conference 2014 and 2016, NFA meeting 2015, London School of Economics, Barcelona GSE Summer Forum 2016, and Theoretical and Experimental Monetary Economics Conference 2018 for helpful comments. We thank Elizabeth Viloudaki for careful copy editing. Financial support from the Austrian National Bank (OeNB grant 14953, Huber), JSPS KAKENHI (Grant number 26590052, 17K03820, and 15H01958, Hirota), UniCredit (Modigliani Research Grant, 4th edition, St?ckl) and Yale University (Sunder) are gratefully acknowledged. The experimental data are available from the authors.
Publisher Copyright:
© 2020
PY - 2020
Y1 - 2020
N2 - To explore how speculative trading influences prices in financial markets, we conduct a laboratory market experiment with speculating investors (who do not collect dividends and trade only for capital gains) and dividend-collecting investors. Moreover, we operate markets at two different levels of money supply. We find that in phases with only speculating investors present (i) price deviations from fundamentals are larger; (ii) prices are more volatile; (iii) mispricing increases with the number of transfers until maturity; and (iv) speculative trading pushes prices upward (downward) when the supply of money is high (low). These results suggest that controlling the money supply can help to stabilize asset prices.
AB - To explore how speculative trading influences prices in financial markets, we conduct a laboratory market experiment with speculating investors (who do not collect dividends and trade only for capital gains) and dividend-collecting investors. Moreover, we operate markets at two different levels of money supply. We find that in phases with only speculating investors present (i) price deviations from fundamentals are larger; (ii) prices are more volatile; (iii) mispricing increases with the number of transfers until maturity; and (iv) speculative trading pushes prices upward (downward) when the supply of money is high (low). These results suggest that controlling the money supply can help to stabilize asset prices.
KW - Backward and forward induction
KW - Experimental finance
KW - Money supply
KW - Overlapping generations
KW - Price bubbles
KW - Price efficiency
KW - Rational expectations
KW - Speculation
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U2 - 10.1016/j.jebo.2020.06.010
DO - 10.1016/j.jebo.2020.06.010
M3 - Article
AN - SCOPUS:85088796080
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
SN - 0167-2681
ER -