League-Table Incentives and Price Bubbles in Experimental Asset Markets

43 Pages Posted: 23 May 2011

See all articles by Stephen L. Cheung

Stephen L. Cheung

The University of Sydney; IZA Institute of Labor Economics

Andrew Coleman

The University of Sydney

Abstract

We study experimental markets in which participants face incentives modeled upon those prevailing in markets for managed funds. Each participant's portfolio is periodically evaluated at market value and ranked in a league table according to short-term paper returns. Those who rank highly attract a larger share of new fund inflows. Under conditions in which prices are close to intrinsic value, the effect of incentives is mild. However under conditions in which markets are prone to bubble, mispricing is greatly exacerbated by incentives. Even in experienced markets, prices climb to levels clearly indicative of speculation and do not always crash back.

Keywords: league tables, price bubbles, managed funds markets, tournament incentives, asset market experiments

JEL Classification: C92, G12, M52

Suggested Citation

Cheung, Stephen L. and Coleman, Andrew, League-Table Incentives and Price Bubbles in Experimental Asset Markets. IZA Discussion Paper No. 5704, Available at SSRN: https://ssrn.com/abstract=1849459 or http://dx.doi.org/10.2139/ssrn.1849459

Stephen L. Cheung (Contact Author)

The University of Sydney ( email )

School of Economics
Social Sciences Building A02
Sydney, NSW 2006
Australia
+61 2 9351 2135 (Phone)
+61 2 9351 4341 (Fax)

HOME PAGE: http://https://sydney.edu.au/arts/economics/staff/profiles/stephen.cheung.php

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andrew Coleman

The University of Sydney

University of Sydney
Sydney, NSW 2006
Australia

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