Price bubbles sans dividend anchors: Evidence from laboratory stock markets

Shinichi Hirota*, Shyam Sunder

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

42 Citations (Scopus)


We experimentally explore how investor decision horizons influence the formation of stock prices. We find that in long-horizon sessions, where investors collect dividends till maturity, prices converge to the fundamental levels derived from dividends through backward induction. In short-horizon sessions, where investors exit the market by receiving the price (not dividends), price levels and paths become indeterminate and lose dividend anchors; investors tend to form their expectations of future prices by forward, not backward, induction. These laboratory results suggest that investors' short horizons and the consequent difficulty of backward induction are important contributors to the emergence of price bubbles.

Original languageEnglish
Pages (from-to)1875-1909
Number of pages35
JournalJournal of Economic Dynamics and Control
Issue number6
Publication statusPublished - 2007 Jun


  • Backward induction
  • Market experiments
  • Short-term investors
  • Stock price bubbles

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics


Dive into the research topics of 'Price bubbles sans dividend anchors: Evidence from laboratory stock markets'. Together they form a unique fingerprint.

Cite this