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  • Thar She Blows: Rekindling Bubbles

  • Outline of PresentationStandard Results from 20 Years of Bubble ExperimentsEnvironmental Influences on Bubble CharacteristicsExperimental DesignResultsConclusions

  • Overview of the Experimental EnvironmentThe basic experimental set-up has the following features15 period assetDividend uncertainty {0,8,28,60}Initial cash and sharesDouble Auction or Call market trading mechanismTrader experience

  • Fundamental Value LinePeriod 1: 24 x 15 =360

  • Fundamental Value Line360 - 24 =336 for Period 2

  • Fundamental Value Line

  • Fundamental Value Line

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • Inexperience Traders Time Series

  • A Different View

    Chart1

    -285

    -259

    -212

    -138

    -111

    -40

    54

    128

    165

    186

    180

    154

    78

    27

    11

    Inexperienced

    Period

    Price - FV

    Deviation from Fundamental Value

    Sheet1

    InexperiencedOnce ExperiencedTwice Experienced

    -285-240-90

    -259-161-26

    -212-10213

    -138-6835

    -111-436

    -4080-20

    54114

    12814828

    165122

    186661

    180-10-55

    154-21-1

    78233

    27-48-18

    11340

    Sheet1

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    Inexperienced

    Once Experienced

    Twice Experienced

    Period

    Price - FV

    Deviation from Fundamental Value

    Sheet2

    Sheet3

  • A Different View

    Chart1

    -285-240

    -259-161

    -212-102

    -138-68

    -111-4

    -4080

    54114

    128148

    165122

    18666

    180-10

    154-21

    7823

    27-48

    1134

    Inexperienced

    Once Experienced

    Period

    Price - FV

    Deviation from Fundamental Value

    Sheet1

    InexperiencedOnce ExperiencedTwice Experienced

    -285-240-90

    -259-161-26

    -212-10213

    -138-6835

    -111-436

    -4080-20

    54114

    12814828

    165122

    186661

    180-10-55

    154-21-1

    78233

    27-48-18

    11340

    Sheet1

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    Inexperienced

    Once Experienced

    Twice Experienced

    Period

    Price - FV

    Deviation from Fundamental Value

    Sheet2

    Sheet3

  • A Different View

    Chart1

    -285-240-90

    -259-161-26

    -212-10213

    -138-6835

    -111-436

    -4080-20

    54114

    12814828

    165122

    186661

    180-10-55

    154-21-1

    78233

    27-48-18

    11340

    Inexperienced

    Once Experienced

    Twice Experienced

    Period

    Price - FV

    Deviation from Fundamental Value

    Sheet1

    InexperiencedOnce ExperiencedTwice Experienced

    -285-240-90

    -259-161-26

    -212-10213

    -138-6835

    -111-436

    -4080-20

    54114

    12814828

    165122

    186661

    180-10-55

    154-21-1

    78233

    27-48-18

    11340

    Sheet1

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    000

    Inexperienced

    Once Experienced

    Twice Experienced

    Period

    Price - FV

    Deviation from Fundamental Value

    Sheet2

    Sheet3

  • Bubble CharacteristicsAmplitude: measures trough-to-peak change in asset value relative to fundamental value

  • Bubble CharacteristicsAmplitude: measures trough-to-peak change in asset value relative to fundamental value

    Duration: measures the length, in periods, of increases in prices relative to fundamental value

  • Bubble CharacteristicsAmplitude: measures trough-to-peak change in asset value relative to fundamental value

    Duration: measures the length, in periods, of increases in prices relative to fundamental value Turnover: measures market trading activity

  • Estimates of Bubble CharacteristicsAmplitudei = Intercept + 1 Once-experiencedi + 2 Twice-experiencedi

    Durationi = Intercept + 1 Once-experiencedi + 2 Twice-experiencedi

    Turnoveri = Intercept + 1 Once-experiencedi + 2 Twice-experiencedi

  • Results

  • What Has an Effect on the Bubbles?Trader Background? No

  • Short-Selling? No

  • Liquidity?

    Chart1

    -150

    -90

    -70

    -35

    40

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    170

    220

    250

    200

    120

    65

    20

    10

    0

    L=0.5

    Period

    Price - FV

    Liquidity (Cash/Share_Value)

    Sheet1

    PeriodL=0.5L=0.75L=1

    1-150-125-140

    2-90-70-45

    3-70-5-30

    4-355080

    540120160

    6130200220

    7170240300

    8220300350

    9250310400

    10200330425

    11120350370

    1265200220

    1320100200

    141025100

    1501024

    Sheet1

    -150-125-140

    -90-70-45

    -70-5-30

    -355080

    40120160

    130200220

    170240300

    220300350

    250310400

    200330425

    120350370

    65200220

    20100200

    1025100

    01024

    L=0.5

    L=0.75

    L=1

    Period

    Price - FV

    Liquidity (Cash/Share_Value)

    Sheet2

    Sheet3

  • Liquidity? Yes

    Chart1

    -150-125

    -90-70

    -70-5

    -3550

    40120

    130200

    170240

    220300

    250310

    200330

    120350

    65200

    20100

    1025

    010

    L=0.5

    L=0.75

    Period

    Price - FV

    Liquidity (Cash/Share_Value)

    Sheet1

    PeriodL=0.5L=0.75L=1

    1-150-125-140

    2-90-70-45

    3-70-5-30

    4-355080

    540120160

    6130200220

    7170240300

    8220300350

    9250310400

    10200330425

    11120350370

    1265200220

    1320100200

    141025100

    1501024

    Sheet1

    -150-125-140

    -90-70-45

    -70-5-30

    -355080

    40120160

    130200220

    170240300

    220300350

    250310400

    200330425

    120350370

    65200220

    20100200

    1025100

    01024

    L=0.5

    L=0.75

    L=1

    Period

    Price - FV

    Liquidity (Cash/Share_Value)

    Sheet2

    Sheet3

  • Liquidity? Yes

    Chart1

    -150-125-140

    -90-70-45

    -70-5-30

    -355080

    40120160

    130200220

    170240300

    220300350

    250310400

    200330425

    120350370

    65200220

    20100200

    1025100

    01024

    L=0.5

    L=0.75

    L=1

    Period

    Price - FV

    Liquidity (Cash/Share_Value)

    Sheet1

    PeriodL=0.5L=0.75L=1

    1-150-125-140

    2-90-70-45

    3-70-5-30

    4-355080

    540120160

    6130200220

    7170240300

    8220300350

    9250310400

    10200330425

    11120350370

    1265200220

    1320100200

    141025100

    1501024

    Sheet1

    -150-125-140

    -90-70-45

    -70-5-30

    -355080

    40120160

    130200220

    170240300

    220300350

    250310400

    200330425

    120350370

    65200220

    20100200

    1025100

    01024

    L=0.5

    L=0.75

    L=1

    Period

    Price - FV

    Liquidity (Cash/Share_Value)

    Sheet2

    Sheet3

  • Results

  • Dividend Uncertainty? No

  • Dividend Uncertainty? No and Yes

  • Informed Insiders? No

  • Cohort Experience Seems To Do ItExperience with same faces and same environment causes convergence to FVCash exacerbates the bubble characteristicsDividend certainty speeds-up the process

  • Experimental DesignDividends{0,8,28,60}Initial PortfoliosAverage Portfolio is 4 shares and 720 cents in cashTwice ExperiencedSame cohort

    Dividends{0,1,8,28,98} Initial PortfoliosAverage Portfolio is 2 shares and 1530 cents in cashTwice Expe

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