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Multi-period experimental asset markets with distinct fundamental value regimes

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  • Thomas Stöckl

    ()

  • Jürgen Huber

    ()

  • Michael Kirchler

    ()

Abstract

In this methodological study we analyze price adjustment processes in multi-period laboratory asset markets with five distinct fundamental value $$(\hbox {FV})$$ ( FV ) regimes in a unified framework. Minimizing the effect of between-treatment variations we run markets with deterministically decreasing, constant, randomly fluctuating and—as main innovation—markets with deterministically increasing $$\hbox {FV}$$ FV s. We find (i) efficient pricing in markets with constant $$\hbox {FV}$$ FV s, (ii) overvaluation in markets with decreasing $$\hbox {FV}$$ FV s, and (iii) undervaluation in markets with increasing $$\hbox {FV}$$ FV s. (iv) Markets with randomly fluctuating fundamentals show overvaluation when $$\hbox {FV}$$ FV s predominantly decline and undervaluation when $$\hbox {FV}$$ FV s are mostly upward-sloping. Finally, we document that (v) bid-ask spreads and volatility of price changes are positively correlated with mispricing across regimes. The main contribution of the paper is to provide clean comparisons between distinct $$\hbox {FV}$$ FV regimes, in particular between markets with increasing $$\hbox {FV}$$ FV s and other regimes. Copyright Economic Science Association 2015

Suggested Citation

  • Thomas Stöckl & Jürgen Huber & Michael Kirchler, 2015. "Multi-period experimental asset markets with distinct fundamental value regimes," Experimental Economics, Springer;Economic Science Association, vol. 18(2), pages 314-334, June.
  • Handle: RePEc:kap:expeco:v:18:y:2015:i:2:p:314-334
    DOI: 10.1007/s10683-014-9404-1
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    Cited by:

    1. Shinichi Hirota & Juergen Huber & Thomas Stock & Shyam Sunder, 2018. "Speculation and Price Indeterminacy in Financial Markets: An Experimental Study," Cowles Foundation Discussion Papers 2134, Cowles Foundation for Research in Economics, Yale University.
    2. repec:eee:eecrev:v:100:y:2017:i:c:p:72-94 is not listed on IDEAS
    3. repec:eee:ecmode:v:64:y:2017:i:c:p:322-333 is not listed on IDEAS
    4. da Gama Batista, João & Massaro, Domenico & Bouchaud, Jean-Philippe & Challet, Damien & Hommes, Cars, 2017. "Do investors trade too much? A laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 18-34.
    5. Praveen Kujal & Owen Powell, 2017. "Bubbles in Experimental Asset Markets," Working Papers 17-01, Chapman University, Economic Science Institute.
    6. Razen, Michael & Huber, Jürgen & Kirchler, Michael, 2017. "Cash inflow and trading horizon in asset markets," European Economic Review, Elsevier, vol. 92(C), pages 359-384.
    7. Gaffeo, Edoardo & Molinari, Massimo, 2017. "Taxing financial transactions in fundamentally heterogeneous markets," Economic Modelling, Elsevier, vol. 64(C), pages 322-333.
    8. Michael Razen & J�rgen Huber & Michael Kirchler, 2016. "Cash Inflow and Trading Horizon in Asset Markets," Working Papers 2016-06, Faculty of Economics and Statistics, University of Innsbruck.
    9. Loukas Balafoutas & Simon Czermak & Marc Eulerich & Helena Fornwagner, 2017. "Incentives for dishonesty: An experimental study with internal auditors," Working Papers 2017-06, Faculty of Economics and Statistics, University of Innsbruck.
    10. Jürgen Huber & Michael Kirchler & Thomas Stöckl, 2016. "The influence of investment experience on market prices: laboratory evidence," Experimental Economics, Springer;Economic Science Association, vol. 19(2), pages 394-411, June.

    More about this item

    Keywords

    Experimental finance; Asset market; Bubble; Market efficiency; Fundamental value; C92; D84; G10;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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