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Bubble measures in experimental asset markets

Published online by Cambridge University Press:  14 March 2025

Thomas Stöckl,
Jürgen Huber and
Michael Kirchler
Thomas Stöckl*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, Austria
Jürgen Huber*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, Austria
Michael Kirchler*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, AustriaCentre for Finance, University of Gothenburg, P.O. Box 600, 40530 Gothenburg, Sweden
*
e-mail: thomas.stoeckl@uibk.ac.at
e-mail: juergen.huber@uibk.ac.at
e-mail: michael.kirchler@uibk.ac.at
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Abstract

We review bubble measures which are commonly used in the experimental asset market literature. It seems sensible to require that measures of mispricing should (i) relate the fundamental value and price, (ii) be monotone in the difference between fundamental value and price, and (iii) be independent of the total number of periods and the absolute level of fundamental value. We show that none of the measures currently used fulfills all these criteria. To facilitate comparability across different experimental settings with different parameterizations we propose two alternative measures which fulfill all evaluation criteria. The measure for mispricing, RAD (relative absolute deviation), is calculated by averaging absolute differences between the (volume-weighted) mean price and the fundamental value across all periods and normalizing it with the absolute value of the average FV of the market. The measure for overvaluation, RD (relative deviation), is calculated analogously, but uses raw difference between (volume-weighted) mean prices and fundamental values. Hence, it provides information on whether the mispricing stems from over- or undervaluation of the asset.

Keywords

Experimental economicsAsset marketBubbleBubble measure

JEL classification

D84: Expectations • SpeculationsC90: GeneralG14: Information and Market Efficiency • Event Studies • Insider Trading

Information

Type
Research Article
Information
Experimental Economics , Volume 13 , Issue 3 , September 2010, pp. 284 - 298
Copyright
Copyright © Economic Science Association 2010

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