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Pricing Indefinitely Lived Assets: Experimental Evidence

Author

Listed:
  • John Duffy

    (Economics, University of California Irvine, Irvine, California 92697)

  • Janet Hua Jiang

    (Banking and Payments, Bank of Canada, Ottawa, Ontario K1A 0G9, Canada)

  • Huan Xie

    (Economics, Concordia University, Montreal, Quebec H3G 1M8, Canada)

Abstract

We study indefinitely lived assets in experimental markets and find that the traded prices of these assets are on average about 40% of the risk-neutral fundamental value. Neither uncertainty about the value of total dividend payments nor horizon uncertainty about the duration of trade can account for this low traded price. An Epstein-Zin recursive preference specification that models the dynamic realization of dividend payments, combined with either probability weighting or subjects’ heterogeneous risk attitudes, can rationalize the low traded prices observed in our indefinitely lived asset market.

Suggested Citation

  • John Duffy & Janet Hua Jiang & Huan Xie, 2024. "Pricing Indefinitely Lived Assets: Experimental Evidence," Management Science, INFORMS, vol. 70(12), pages 8772-8790, December.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:12:p:8772-8790
    DOI: 10.1287/mnsc.2021.03059
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    Cited by:

    1. is not listed on IDEAS
    2. Duan, Jieyi & Hanaki, Nobuyuki, 2023. "The impact of asset purchases in an experimental market with consumption smoothing motives," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).

    More about this item

    Keywords

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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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