Asset Characteristics and Boom and Bust Periods: An Experimental Study
Real Estate Economics, June 2012
Posted: 19 Apr 2011
Date Written: April 18, 2011
We examine the impact of transaction costs, short selling restrictions and divisibility of assets on market efficiency in experimental asset markets. We find that transaction costs do not exacerbate the inefficiency of the market. They reduce the magnitude of bubbles and push prices closer to fundamentals. More divisible assets exhibit smaller deviations of prices from fundamentals. Short selling restrictions contribute to prolonged bubbles, while relaxing them increases the occurrence of "bust cycles." We also find that experimental real estate markets display larger deviations of prices from fundamental values, longer boom and bust cycles and smaller turnover than experimental financial markets.
Keywords: boom and bust periods, real estate, financial assets
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