Rate-of-return Parity in Experimental Asset Markets

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Rate-of-return Parity in Experimental Asset Markets

Author Info

Jason Childs
Stuart Mestelman

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Stuart Mestelman

Abstract

This paper applies experimental methods to evaluate the completeness of arbitrage and rate-of-return parity in simultaneous asset markets in which the assets are denominated in different currencies. Two assets, which return uncertain, but known, dividends in each trading period, are traded over 20 periods, after which the asset has no value. Results indicate that risk-neutral rate-of-return parity is a strong predictor of relative asset prices when assets have common expected dividends and the expected dividends have common variances. The predictive power of risk-neutral rate-of-return parity is reduced as the assets become differentiated. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.

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Article provided by Blackwell Publishing in its journal Review of International Economics.

Volume (Year): 14 (2006)
Issue (Month): 3 (08)
Pages: 331-347
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Handle: RePEc:bla:reviec:v:14:y:2006:i:3:p:331-347

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Paper
- Jason Childs & Stuart Mestelman, 2004. "Rate of Return Parity in Experimental Asset Markets," McMaster Experimental Economics Laboratory Publications 2004-07, McMaster University. [Downloadable!]
- Jason Childs & Stuart Mestelman, 2004. "Rate of Return Parity in Experimental Asset Markets," McMaster Experimental Economics Laboratory Publications 2004-01, McMaster University. [Downloadable!]
- Jason Childs & Stuart Mestelman, 2004. "Rate of Return Parity in Experimental Asset Markets," Department of Economics Working Papers 2004-01, McMaster University. [Downloadable!]

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Other versions:
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- Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley. [Downloadable!]
- Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series 1010, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
- Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc. [Downloadable!]
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Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Jason Childs, 2007. "Rate of Return Parity with Robot Asset Traders," Computational Economics, Springer, vol. 29(1), pages 1-12, February. [Downloadable!] (restricted)

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