Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets

Spot asset trading is studied where the only external source of value is an independent draw from a common information dividend distribution at the end of each of fifteen trading periods. Fourteen of twenty-two experiments exhibit price bubbles. This tendency to bubble decreases with trader experience. The regression of changes in mean price on lagged excess bids (bids minus offers in the previous period) supports the hypothesis that the intercept is minus the one-period expected dividend value, and the slope is positive, where excess bids measures excess demand attributable to homegrown capital gains expectations. Copyright 1988 by The Econometric Society.