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.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 14 (2006)
Issue (Month): 3 (08)
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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," McMaster Experimental Economics Laboratory Publications 2004-07, McMaster University.
- Jason Childs & Stuart Mestelman, 2004. "Rate of Return Parity in Experimental Asset Markets," Department of Economics Working Papers 2004-01, McMaster University.
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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