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Experimental evidence on varying uncertainty and skewness in laboratory double-auction markets

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  • Huber, Jürgen
  • Kirchler, Michael
  • Stefan, Matthias

Abstract

We investigate the influence of skewness in asset fundamentals on asset prices under different states of uncertainty in double-auction markets. Three different types of assets are considered: risky assets, ambiguous assets and assets where the fundamental value distribution can be learned by repeated sampling of realizations. We show that market prices for skewed assets initially differ from those of non-skewed assets for risky as well as for ambiguous assets. Because of learning, the difference in market prices mostly disappears towards the end of trading. When fundamentals are “learned” by experience sampling, prices of all assets, irrespective of skewness, are very efficient from the beginning. Thus, when probabilities are not described but experienced, subjects are better able to estimate the fundamental value of an asset.

Suggested Citation

  • Huber, Jürgen & Kirchler, Michael & Stefan, Matthias, 2014. "Experimental evidence on varying uncertainty and skewness in laboratory double-auction markets," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 798-809.
  • Handle: RePEc:eee:jeborg:v:107:y:2014:i:pb:p:798-809
    DOI: 10.1016/j.jebo.2014.04.004
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    Cited by:

    1. Brocas, Isabelle & Carrillo, Juan D & Giga, Aleksandar & Zapatero, Fernando, 2016. "Skewness Seeking in a Dynamic Portfolio Choice Experiment," CEPR Discussion Papers 11056, C.E.P.R. Discussion Papers.
    2. repec:spr:decfin:v:40:y:2017:i:1:d:10.1007_s10203-017-0200-1 is not listed on IDEAS
    3. Annalisa Fabretti & Tommy Gärling & Stefano Herzel & Martin Holmen, 2017. "Convex incentives in financial markets: an agent-based analysis," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 40(1), pages 375-395, November.
    4. repec:eee:eecrev:v:103:y:2018:i:c:p:108-124 is not listed on IDEAS

    More about this item

    Keywords

    Experimental finance; Skewness; Ambiguity; Risk; Experience sampling; Market efficiency;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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