Asset Characteristics and Boom and Bust Periods: An Experimental Study

• Published in: Real estate economics Vol. 40; no. 3; pp. 603 - 636
• Main Authors: Ikromov, Nuriddin, Yavas, Abdullah
• Format: Journal Article
• Language: English
• Published: Malden, USA Blackwell Publishing Inc 01-09-2012; Blackwell Publishing Ltd
• Subjects: Assets; Market prices; Real estate; Short sales; Studies; Transaction costs
• ISSN: 1080-8620; 1540-6229
• DOI: 10.1111/j.1540-6229.2012.00333.x

We examine the impact of transaction costs, short selling restrictions and divisibility of assets on market efficiency in experimental asset markets. We find that transaction costs do not exacerbate the inefficiency of the market. They reduce the magnitude of bubbles and push prices closer to fundamentals. More divisible assets exhibit smaller deviations of prices from fundamentals. Short selling restrictions contribute to prolonged bubbles, while relaxing them increases the occurrence of “bust cycles.” We also find that experimental real estate markets display larger deviations of prices from fundamental values, longer boom and bust cycles and smaller turnover than experimental financial markets.