The effect of short selling on bubbles and crashes in experimental spot asset markets

Ernan Haruvy, Charles N. Noussair

Research output: Contribution to journalArticlepeer-review

154 Scopus citations

Abstract

A series of experiments illustrate that relaxing short-selling constraints lowers prices in experimental asset markets, but does not induce prices to track fundamentals. We argue that prices in experimental asset markets are influenced by restrictions on short-selling capacity and limits on the cash available for purchases. Restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner. A simulation model, based on DeLong et al. (1990), generates average price patterns that are similar to the observed data.

Original languageEnglish (US)
Pages (from-to)1119-1157
Number of pages39
JournalJournal of Finance
Volume61
Issue number3
DOIs
StatePublished - Jun 2006
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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