Title: Leverage in experimental asset markets
Author: Sascha Fullbrunn
We introduce the possibility of leverage to the experimental asset market setting from Smith et al (1988). Traders can borrow money or borrow assets using margin as collateral. Violating margin requirements immediately triggers a margin call and margin is increased by automatically buying or selling assets, respectively, until the requirements are met. In a two by two design we compare the standard setting to a setting with either buy on margin or short sale and a setting where both is enabled. Overall we can say that buy on margin tends to increase the bubble while short sales tend to decrease the bubbles. We refer to the instability hypothesis by Hyman Minski (1982).