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Rational Expectations in an Experimental Asset Market with Shocks to Market Trends

Author

Listed:
  • Philipp Marquardt
  • Charles N. Noussair
  • Martin Weber

Abstract

We construct an experimental asset market in which the time trend of the fundamental value is subject to a shock. The design of the experiment allows testing of whether prices adhere to rational expectations levels, and whether there is over- or under-reaction to new information. We find that prices conform closely to rational expectations and episodes of mispricing are rare. A meta-analysis allows us to update our beliefs about whether experimental asset markets exhibit a generic tendency to misprice, particularly in bearish environments.

Suggested Citation

  • Philipp Marquardt & Charles N. Noussair & Martin Weber, 2018. "Rational Expectations in an Experimental Asset Market with Shocks to Market Trends," Experimental Economics Center Working Paper Series 2018-10, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:exc:wpaper:2018-10
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    File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2018-10.pdf
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    2. Bulutay, Muhammed & Cornand, Camille & Zylbersztejn, Adam, 2022. "Learning to deal with repeated shocks under strategic complementarity: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1318-1343.
    3. Lustenhouwer, Joep & Salle, Isabelle, 2025. "Learning to be rational in the presence of news: A lab investigation," European Economic Review, Elsevier, vol. 172(C).
    4. John Duffy & Jean Paul Rabanal & Olga A. Rud, 2019. "The Impact of ETFs on Asset Markets: Experimental Evidence," Working Papers 154, Peruvian Economic Association.
    5. Lustenhouwer, Joep & Salle, Isabelle, 2022. "Forecast revisions in the presence of news: a lab investigation," Working Papers 0714, University of Heidelberg, Department of Economics.
    6. Daniel Q. Harper & Charles A. Holt & Margaret M. Isaacson, 2026. "Persistent Private Information in Experimental Asset Markets," Southern Economic Journal, John Wiley & Sons, vol. 92(3), pages 809-827, January.
    7. Lucy F. Ackert & Brian D. Kluger & Li Qi & Lijia Wei, 2022. "An experimental examination of the flow of irrelevant information across markets," Southern Economic Journal, John Wiley & Sons, vol. 88(3), pages 1119-1148, January.
    8. Bousselmi, Wael & Sentis, Patrick & Willinger, Marc, 2019. "How do markets react to (un)expected fundamental value shocks? An experimental analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 90-113.

    More about this item

    Keywords

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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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