Prices and Portfolio Choices in Financial Markets: Theory, Econometrics, Experiments
AbstractMany tests of asset-pricing models address only the pricing predictions, but these pricing predictions rest on portfolio choice predictions that seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices based on unobserved heterogeneity. This approach yields the standard pricing conclusions of classical models but is consistent with very different portfolio choices. Novel econometric tests link the price and portfolio predictions and take into account the general equilibrium effects of sample-size bias. This paper works through the approach in detail for the case of the classical capital asset pricing model (CAPM), producing a model called CAPM+ε. When these econometric tests are applied to data generated by large-scale laboratory asset markets that reveal both prices and portfolio choices, CAPM+εis not rejected. Copyright The Econometric Society 2007.
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 Econometric Society in its journal Econometrica.
Volume (Year): 75 (2007)
Issue (Month): 4 (07)
Other versions of this item:
- Peter Bossaerts & Charles Plott & William R. Zame, 2003. "Prices and Portfolio Choices in Financial Markets: Theory, Econometrics, Experiments," Swiss Finance Institute Research Paper Series 07-05, Swiss Finance Institute, revised Mar 2007.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Eichberger, Jürgen & Rheinberger, Klaus & Summer, Martin, 2012.
"Credit risk in general equilibrium,"
Working Paper Series
1445, European Central Bank.
- Jürgen Eichberger & Klaus Rheinberger & Martin Summer, 2014. "Credit Risk in General Equilibrium," CESifo Working Paper Series 4602, CESifo Group Munich.
- Rheinberger, Klaus & Summer, Martin & Eichberger, Jürgen, 2011. "Credit Risk in General Equilibrium," Working Papers 172, Oesterreichische Nationalbank (Austrian Central Bank).
- Pesaran, M. Hashem & Yamagata, Takashi, 2012.
"Testing CAPM with a Large Number of Assets,"
IZA Discussion Papers
6469, Institute for the Study of Labor (IZA).
- Anufriev, M. & Tuinstra, J. & Bao, T., 2013. "Fund Choice Behavior and Estimation of Switching Models: An Experiment," CeNDEF Working Papers 13-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Pesaran, M. H. & Yamagata, T., 2012. "Testing CAPM with a Large Number of Assets (Updated 28th March 2012)," Cambridge Working Papers in Economics 1210, Faculty of Economics, University of Cambridge.
- Catherine Eckel & Rick Wilson, 2006. "Internet cautions: Experimental games with internet partners," Experimental Economics, Springer, vol. 9(1), pages 53-66, April.
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.