Asset Bubbles without Dividends -An Experiment

Bubbles in asset markets have been documented in numerous experimentalstudies. However, all experiments in which bubbles occurpay dividends after each trading day. In this paper we study whetherbubbles can occur in markets without dividends. We investigate therole of two features that are present in real markets. (1) The merepossibility that some traders may have inside information, and (2) theoption to communicate with other traders. We find that bubbles canindeed occur without dividends. Surprisingly, communication turnsout to be counterproductive for bubble formation, whereas the possibilityof inside information is, as expected, crucial....