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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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    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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