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The Impact of Asset Repurchases and Issues in an Experimental Market

Author

Listed:
  • Ernan Haruvy
  • Charles N. Noussair
  • Owen Powell

Abstract

We create an experimental asset market in which the value of the shares is independent of the quantity outstanding, and find that (i) repurchases increase, whereas share issues decrease, the price of the asset. These effects are consistent with downward-sloping demand for the asset. (ii) This behavior is consistent with three trader types—fundamental, speculator, and momentum—interacting in the market. (iii) Share issues drive prices down toward, but not beyond, fundamental values. This downward resistance at the fundamental value is predicted by the impact of an intervention on the proportion of units and cash held by each trader type.

Suggested Citation

  • Ernan Haruvy & Charles N. Noussair & Owen Powell, 2014. "The Impact of Asset Repurchases and Issues in an Experimental Market," Review of Finance, European Finance Association, vol. 18(2), pages 681-713.
    • Handle: RePEc:oup:revfin:v:18:y:2014:i:2:p:681-713.
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    File URL: http://hdl.handle.net/10.1093/rof/rft007
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    Cited by:

    1. Penalver, Adrian & Hanaki, Nobuyuki & Akiyama, Eizo & Funaki, Yukihiko & Ishikawa, Ryuichiro, 2020. "A quantitative easing experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    2. Halim, Edward & Riyanto, Yohanes E., 2020. "Asset markets with insider trading disclosure rule and reselling constraint: An experimental analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    3. Eldad Yechiam & Amitay Kauffmann & Nathaniel J S Ashby & Gal Zahavi, 2017. "On the relation between economic bubbles and effort gaps between sellers and buyers: An experimental study," PLOS ONE, Public Library of Science, vol. 12(12), pages 1-15, December.
    4. Michael Kirchler & Caroline Bonn & Jürgen Huber & Michael Razen, 2014. "The "Inflow-Effect" - Trader Inflow and Bubble Formation in Asset Markets," Working Papers 2014-22, Faculty of Economics and Statistics, Universität Innsbruck.
    5. Stephen Cheung & Stefan Palan, 2012. "Two heads are less bubbly than one: team decision-making in an experimental asset market," Experimental Economics, Springer;Economic Science Association, vol. 15(3), pages 373-397, September.
    6. Breaban, A.G. & Noussair, C.N., 2014. "Fundamental Value Trajectories and Trader Characteristics in an Asset Market Experiment," Other publications TiSEM 3103cf69-bc46-42bf-a9a5-e, Tilburg University, School of Economics and Management.
    7. Te Bao & Cars Hommes & Tomasz Makarewicz, 2017. "Bubble Formation and (In)Efficient Markets in Learning‐to‐forecast and optimise Experiments," Economic Journal, Royal Economic Society, vol. 127(605), pages 581-609, October.
    8. Giusti, G. & Noussair, C.N. & Voth, H-J., 2013. "Recreating the South Sea Bubble : Lessons from an Experiment in Financial History," Discussion Paper 2013-042, Tilburg University, Center for Economic Research.
    9. Adrian Penalver & Nobuyuki Hanaki & Eizo Akiyama & Yukihiko Funaki & Ryuichiro Ishikawa, 2018. "An Experimental Analysis Of The Effect Of Quantitative Easing," Working papers 684, Banque de France.
    10. Duffy, John & Rabanal, Jean Paul & Rud, Olga A., 2023. "Market reactions to stock splits: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 325-345.
    11. Duchêne, Sébastien & Guerci, Eric & Hanaki, Nobuyuki & Noussair, Charles N., 2019. "The effect of short selling and borrowing on market prices and traders’ behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    12. Kirchler, Michael & Bonn, Caroline & Huber, Jürgen & Razen, Michael, 2015. "The “inflow-effect”—Trader inflow and price efficiency," European Economic Review, Elsevier, vol. 77(C), pages 1-19.
    13. Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, July.
    14. 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).
    15. Chmura, Thorsten & Le, Hang & Nguyen, Kim, 2022. "Herding with leading traders: Evidence from a laboratory social trading platform," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 93-106.
    16. Sébastien Duchêne & Nathalie Oriol, 2018. "Too fast, Too furious? Une réflexion historique et contemporaine sur l'emballement des marchés financiers," Post-Print halshs-01860721, HAL.
    17. Owen Powell & Natalia Shestakova, 2017. "The robustness of mispricing results in experimental asset markets," Vienna Economics Papers 1702, University of Vienna, Department of Economics.
    18. Dirk-Jan Janssen & Sascha Füllbrunn & Utz Weitzel, 2019. "Individual speculative behavior and overpricing in experimental asset markets," Experimental Economics, Springer;Economic Science Association, vol. 22(3), pages 653-675, September.
    19. Shestakova, Natalia & Powell, Owen & Gladyrev, Dmitry, 2019. "Bubbles, experience and success," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 206-213.
    20. Breaban, A.G., 2014. "Behavior and asset markets : Individual decisions, emotions and fundamental value trajectories," Other publications TiSEM a20e6a40-f15e-4331-83cb-c, Tilburg University, School of Economics and Management.
    21. Adriana Breaban & Charles N Noussair, 2018. "Emotional State and Market Behavior [Bubbling with excitement: en experiment]," Review of Finance, European Finance Association, vol. 22(1), pages 279-309.
    22. Ferri, Giovanni & Ploner, Matteo & Rizzolli, Matteo, 2021. "Trading fast and slow: The role of deliberation in experimental financial markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).

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    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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