Abstract
We investigate whether prices in experimental asset markets behave differently when participants are required to trade over earned wealth compared to unearned wealth.The latter describes the standard practice of endowing participants with cash/assets in experimental asset market studies of bubbles, which may elicit greater-than-normal risk-seeking behaviour, thereby confounding attempts to understand their drivers ormitigators. We take a new methodological approach in the vein of Cherry et al (2002)in seeking to answer this question by requiring participants in one treatment to earn their initial market allocation. We find that bubbles/mispricing occurs with similar frequency, severity, and duration whether trade occurs with earned or unearned wealth. Our results indicate that any confounding effect(s) caused by endowed money in past studies of bubbles is minimal. Consequently, existing methodology in the study of bubbles does not require modification.
| Original language | English |
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| Title of host publication | Proceedings of the Behavioural Finance and Capital Markets Conference |
| Editors | P Kalev |
| Place of Publication | Adelaide |
| Publisher | University of South Australia |
| Publication status | Published - 2013 |
| Event | Behavioural Finance and Capital Markets Conference - Rockford Hotel, Adelaide, Australia Duration: 1 Aug 2013 → 2 Aug 2013 http://www.unisa.edu.au/research/cafs/events/conferences/ |
Conference
| Conference | Behavioural Finance and Capital Markets Conference |
|---|---|
| Country | Australia |
| City | Adelaide |
| Period | 1/08/13 → 2/08/13 |
| Internet address |
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Cite this
Paul, D. J., Henker, J., & Owen, S. (2013). House money effects in experimental asset markets. In P. Kalev (Ed.), Proceedings of the Behavioural Finance and Capital Markets Conference Adelaide: University of South Australia.