Rate-of-return Parity in Experimental Asset Markets
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 14 (2006)
Issue (Month): 3 (08)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
Other versions of this item:
- Jason Childs & Stuart Mestelman, 2004. "Rate of Return Parity in Experimental Asset Markets," Department of Economics Working Papers 2004-01, McMaster University.
- Jason Childs & Stuart Mestelman, 2004. "Rate of Return Parity in Experimental Asset Markets," McMaster Experimental Economics Laboratory Publications 2004-07, McMaster University.
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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.:
- De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990.
"Noise Trader Risk in Financial Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 703-38, August.
- De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
- J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers _124, University of California at Berkeley, Economics Department.
- Maurice Obstfeld & Kenneth Rogoff, 2001.
"The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?,"
- 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.
- 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.
- Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Frachot, Antoine, 1996. "A reexamination of the uncovered interest rate parity hypothesis," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 419-437, June.
- Allan W. Gregory, 1987. "Testing Interest Rate Parity and Rational Expectations for Canada and the United States," Canadian Journal of Economics, Canadian Economics Association, vol. 20(2), pages 289-305, May.
- Dutton, Marilyn Miller, 1993. "Real interest rate parity new measures and tests," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 62-77, February.
- Sunder, S., 1992. "Experimental Asset Markets: A Survey," GSIA Working Papers 1992-19, Carnegie Mellon University, Tepper School of Business.
- Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-51, September.
- Mayfield, E. Scott & Murphy, Robert G., 1992.
"Interest rate parity and the exchange risk premium Evidence from panel data,"
Elsevier, vol. 40(3), pages 319-324, November.
- E. Scott Mayfield & Robert G. Murphy, 1993. "Interest Rate Parity And The Exchange Risk Premium: Evidence From Panel Data," Boston College Working Papers in Economics 239, Boston College Department of Economics.
- Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Interpreting Tests of Forward Discount Bias Using Survey Data on Exchange Rate Expectations," NBER Working Papers 1963, National Bureau of Economic Research, Inc.
- Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November.
- Ayuso, Juan & Restoy, Fernando, 1996. "Interest rate parity and foreign exchange risk premia in the ERM," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 369-382, June.
- Smith, Vernon L, 1985. "Experimental Economics: Reply," American Economic Review, American Economic Association, vol. 75(1), pages 264-72, March.
- Jason Childs, 2007. "Rate of Return Parity with Robot Asset Traders," Computational Economics, Society for Computational Economics, vol. 29(1), pages 1-12, February.
- Childs, Jason, 2009. "Rate of return parity and currency crises in experimental asset markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(1), pages 157-170, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.