Cash Inflows and Bubbles in Asset Markets with Constant Fundamental Values

11 Pages Posted: 10 May 2016

See all articles by Charles N. Noussair

Charles N. Noussair

Tilburg University

Steven James Tucker

University of Waikato Management School - Economics

Date Written: July 2016

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 Classification: C90, D03, G02, G12

Suggested Citation

Noussair, Charles N. and Tucker, Steven James, Cash Inflows and Bubbles in Asset Markets with Constant Fundamental Values (July 2016). Economic Inquiry, Vol. 54, Issue 3, pp. 1596-1606, 2016, Available at SSRN: https://ssrn.com/abstract=2777781 or http://dx.doi.org/10.1111/ecin.12320

Charles N. Noussair (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Steven James Tucker

University of Waikato Management School - Economics ( email )

Hamilton
New Zealand

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