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A Study on the Commonality Mechanism Formation Schema of Asset Price Bubbles Based on Experimental Economics

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DOI: 10.23977/ferm.2023.061003 | Downloads: 10 | Views: 372

Author(s)

Tingting Wu 1, Lili Dun 2

Affiliation(s)

1 Business School, Xi’an International Studies University, Xi'an, Shaanxi, 710128, China
2 Henan Daily Group, Zhengzhou, Henan, 450000, China

Corresponding Author

Tingting Wu

ABSTRACT

Eight groups of different experimental environment have been set up, based on the differences in the basis value, liquidity value and asset supply volume. These groups adopt the experimental economics approach to validate whether asset price bubble will be formed under a single condition, any two conditions or three conditions of excess liquidity, high benefit expectation as well as the supply of inflexible assets respectively. Firstly, the statistical analysis about the experimental results have been performed based on the Mann-Whitney approach, the three forming conditions listed above have been validated in order to impose a positive effect on the asset price bubble and the effectiveness of the theoretical hypothesis have also been tested. Secondly, the average of the experimental results has been compared using Kruskal-Wallis approach, which has proved that asset price bubble can only be formed when the three forming conditions listed above are satisfied. Finally, the experimental result has revealed the commonality formation path for asset price bubble, which means that the asset price bubble will be formed when over-trading is generated by excess liquidity under the condition of high investment expectation for the investor. It will also be formed when the asset price deviates from the basis price severely under the function of positive feedback mechanism, based on the premise of inelastic asset supply.

KEYWORDS

Experimental Economics, Excess Liquidity, High Benefit Expectation, Inelastic Assets Supply, Asset Price Bubble and Commonality Formation Mechanism

CITE THIS PAPER

Tingting Wu, Lili Dun, A Study on the Commonality Mechanism Formation Schema of Asset Price Bubbles Based on Experimental Economics. Financial Engineering and Risk Management (2023) Vol. 6: 24-34. DOI: http://dx.doi.org/10.23977/ferm.2023.061003.

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