An Experimental Test of the Lucas Asset Pricing Model
AbstractWe implement a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In one treatment we impose diminishing marginal returns to cash to incentivize consumption-smoothing across periods, while in a second treatment there is no induced motive for trade. In the former case subjects smooth consumption, and assets trade at a discount relative to the risk-neutral fundamental price. This under-pricing is a departure from the `bubbles` observed in the experimental asset pricing experiments of Smith et al. (1988). In our second treatment with no induced motive for trade, assets trade at a premium relative to expected value and shareholdings are highly concentrated.
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Bibliographic InfoPaper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 504.
Date of creation: Feb 2010
Date of revision: May 2013
Asset Pricing; Lucas Tree Model; Experimental Economics; General Equilibrium; Intertemporal Choice; Macrofinance; Consumption Smoothing; Risk Attitudes;
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
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