Financial Bubbles: Excess Cash, Momentum, and Incomplete Information

  title={Financial Bubbles: Excess Cash, Momentum, and Incomplete Information},
  author={Gunduz Caginalp and David Porter and Vernon L. Smith},
  journal={Journal of Psychology and Financial Markets},
  pages={80 - 99}
We report on a large number of laboratory market experiments demonstrating that a market bubble can be reduced under the following conditions: 1) a low initial liquidity level, i.e., less total cash than value of total shares, 2) deferred dividends, and 3) a bid-ask book that is open to traders. Conversely, a large bubble arises when the opposite conditions exist. The first part of the article is comprised of twenty-five experiments with varying levels of total cash endowment per share… 
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  • G. Caginalp, D. Balenovich
  • Mathematics
    Philosophical Transactions of the Royal Society of London. Series A: Mathematical, Physical and Engineering Sciences
  • 1999
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