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Futures Contracting and Dividend Uncertainty in Experimental Asset Markets

David P. Porter and Vernon L. Smith
The Journal of Business
Vol. 68, No. 4 (Oct., 1995), pp. 509-541
Stable URL: http://www.jstor.org/stable/2353144
Page Count: 33
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Futures Contracting and Dividend Uncertainty in Experimental Asset Markets
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Abstract

Prices in experimental asset markets tend to bubble and then crash to dividend value at the end of the asset's useful life. Explanations for this phenomenon are (1) that participants cannot form reliable future price expectations or (2) dividend risk aversion. We report the results of experiments to test these hypotheses. In one experimental series, a futures market is introduced so that participants can obtain information on future share prices. In another series of experiments, the per-period dividend is known with certainty. The futures market treatment had little effect on the character of bubble. The certain dividend treatment had little effect on the character of bubbles with inexperienced traders.

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