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Peaks and Valleys: Experimental Asset Markets With Non-Monotonic Fundamentals

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Author Info
Noussair, C.N.
Powell, O.R. (Tilburg University, Center for Economic Research)

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Abstract

We report the results of an experiment designed to measure how well asset market prices track fundamentals when the latter experience peaks and troughs. We observe greater price efficiency in markets in which fundamentals rise to a peak and then decline, than in markets in which fundamentals decline to a trough and undergo a subsequent increase. The findings demonstrate that the characteristics of the time path of the fundamental value can influence the degree of market efficiency.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-49.

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Date of creation: 2008
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Handle: RePEc:dgr:kubcen:200849

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C9 - Mathematical and Quantitative Methods - - Design of Experiments
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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  6. 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. [Downloadable!] (restricted)
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  12. Ernan Haruvy & Charles N. Noussair, 2006. "The Effect of Short Selling on Bubbles and Crashes in Experimental Spot Asset Markets," Journal of Finance, American Finance Association, vol. 61(3), pages 1119-1157, 06. [Downloadable!] (restricted)
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  16. Charles Noussair & Stephane Robin & Bernard Ruffieux, 2001. "Price Bubbles in Laboratory Asset Markets with Constant Fundamental Values," Experimental Economics, Springer, vol. 4(1), pages 87-105, June. [Downloadable!] (restricted)
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