A Dynamic General Equilibrium Approach to Asset Pricing Experiments
AbstractWe report results from a laboratory experiment that implements a consumption-based dynamic general equilibrium model of asset pricing. This work-horse model of the macrofinance literature posits that agents buy and sell assets for the purpose of intertemporally smoothing consumption, and that asset prices are determined by individual risk and time preferences as well as the distribution of income and dividends. The experimental findings are largely supportive of the modelï¿½s theoretical predictions. Notably we observe that asset price bubbles, defined as sustained departures of prices from those implied by fundamentals, are infrequent and short-lived. This finding is a stark departure from many recent multi-period asset pricing experiments that lack a consumption-smoothing objective. Indeed, we find that when subjects are induced to adjust shareholdings to smooth consumption, assets typically trade at a discount relative to their expected value and market participation is broad; when the consumption smoothing motivation to trade assets is removed in an otherwise identical economy, assets frequently trade at a premium relative to fundamentals and shareholdings become highly concentrated.
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.
Bibliographic InfoPaper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 398.
Date of creation: Jun 2010
Date of revision: Jun 2010
Find related papers by JEL classification:
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-DGE-2010-07-10 (Dynamic General Equilibrium)
- NEP-EXP-2010-07-10 (Experimental Economics)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- A Dynamic General Equilibrium Approach to Asset Pricing Experiments
by Christian Zimmermann in NEP-DGE blog on 2010-07-13 02:40:42
- Andreas Orland & Michael W.M. Roos, 2011.
"The New Keynesian Phillips Curve with Myopic Agents,"
Ruhr Economic Papers
0281, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Orland, Andreas & Roos, Michael W.M., 2013. "The New Keynesian Phillips curve with myopic agents," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2270-2286.
- Bao, T. & Duffy, J. & Hommes, C.H., 2011.
"Learning, Forecasting and Optimizing: an Experimental Study,"
CeNDEF Working Papers
11-08, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Bao, Te & Duffy, John & Hommes, Cars, 2013. "Learning, forecasting and optimizing: An experimental study," European Economic Review, Elsevier, vol. 61(C), pages 186-204.
- Te Bao & John Duffy & Cars Hommes, 2012. "Learning, Forecasting and Optimizing: An Experimental Study," Tinbergen Institute Discussion Papers 12-015/1, Tinbergen Institute.
- Volodymyr Lugovskyy & Daniela Puzzello & Steven Tucker, 2009. "An Experimental Study of Bubble Formation in Asset Markets Using the Tâtonnement Pricing Mechanism," Working Papers in Economics 09/19, University of Canterbury, Department of Economics and Finance.
- Elena Asparouhova & Peter Bossaerts & Nilanjan Roy & William Zame, 2013.
"‘Lucas’ In The Laboratory,"
EIEF Working Papers Series
1314, Einaudi Institute for Economics and Finance (EIEF), revised May 2013.
- repec:nbr:nberch:12923 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alistair Wilson).
If references are entirely missing, you can add them using this form.