Futures Contracting and Dividend Uncertainty in Experimental Asset Markets
David P. Porter
California Institute of Technology
Vernon L. Smith
Chapman University - Economic Science Institute; Chapman University School of Law
JOURNAL OF BUSINESS, Vol 68 No. 4, October 1995
Prices in experimental asset markets tend to bubble and then crash to dividend value at the end of the asset's useful life. Explanations for this phenomenon are: (1) participants cannot form reliable future price expectations and (2) dividend risk aversion. We report the results of experiments to test these hypotheses. In one experimental series, a futures market is introduced so that participants can obtain information on future share prices. In another series of experiments, the per period dividend is known with certainty. The futures market treatment reduced the bubble. The certain dividend treatments had little effect on the character of bubbles with inexperienced traders.
JEL Classification: G13Accepted Paper Series
Date posted: October 10, 1998
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