CASH INFLOWS AND BUBBLES IN ASSET MARKETS WITH CONSTANT FUNDAMENTAL VALUES |
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| Authors: | Charles N Noussair Steven Tucker |
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| Institution: | 1. +1 520 621 6229+1 520 621 8450;2. Professor, Department of Economics, Eller College of Management, University of Arizona, Tucson, AZ;3. +64 7 838 4477+64 7 838 4063;4. Associate Professor, Department of Economics, University of Waikato, Hamilton, New Zealand |
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| Abstract: | Previous experimental research on asset markets has reported that the level of cash available to traders does not affect asset prices when fundamentals follow a time trajectory that is constant over time. This contrasts with other research indicating that greater cash levels increase prices when fundamental values are decreasing over time. We report a new experiment in which we show that greater initial cash levels are indeed associated with higher prices when fundamental values are constant over time. Thus, high cash levels will lead to bubbles, if the cash is introduced before the market opens. Our results reconcile the two previous sets of findings. (JEL C90, D03, G02, G12) |
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