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Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation

Author

Listed:
  • Bruno Biais

    (HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales)

  • Thomas Mariotti

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Sophie Moinas

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, TSM - Toulouse School of Management Research - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse)

  • Sébastien Pouget

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, TSM - Toulouse School of Management Research - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse)

Abstract

We study asset pricing and risk sharing in experimental financial markets. We design our experiment to test the key equilibrium implications of rational choice and competitive behavior in complete markets without making parametric assumptions on preferences. We find that participants behave competitively but deviate from rationality, as around 25% of their actions are first-order stochastically dominated. We propose a random-choice model predicting that, as the number of participants grows large, prices and average per-participant trades converge to those in the rational-choice competitive equilibrium. This prediction is supported by our experimental data. We structurally estimate a special case of the random-choice model with CRRA utilities and logit weighting functions and find that only around 80% of participants benefit from participating in the market.

Suggested Citation

  • Bruno Biais & Thomas Mariotti & Sophie Moinas & Sébastien Pouget, 2025. "Asset Pricing and Risk Sharing in Complete Markets: An Experimental Investigation," Working Papers hal-05376175, HAL.
    • Handle: RePEc:hal:wpaper:hal-05376175
    Note: View the original document on HAL open archive server: https://hal.science/hal-05376175v1
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    Cited by:

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    2. Duffy, John & Rabanal, Jean Paul & Rud, Olga A., 2021. "The impact of ETFs in secondary asset markets: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 674-696.
    3. John Duffy & Jean Paul Rabanal & Olga A. Rud, 2019. "The Impact of ETFs on Asset Markets: Experimental Evidence," Working Papers 154, Peruvian Economic Association.
    4. Antonio, Filippin & Marco, Mantovani, 2019. "Risk Aversion and Information Aggregation in Asset Markets," Working Papers 404, University of Milano-Bicocca, Department of Economics, revised Apr 2019.
    5. Sean Crockett & Daniel Friedman & Ryan Oprea, 2021. "Naturally Occurring Preferences And General Equilibrium: A Laboratory Study," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 831-859, May.
    6. Marco Mantovani & Antonio Filippin, 2024. "When do prediction markets return average beliefs? Experimental evidence," Working Papers 532, University of Milano-Bicocca, Department of Economics.
    7. Crockett, Sean & Friedman, Daniel & Oprea, Ryan, 2017. "Aggregation and convergence in experimental general equilibrium economies constructed from naturally occurring preferences," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2017-501, WZB Berlin Social Science Center.
    8. Heinke, Steve & Olschewski, Sebastian & Rieskamp, Jörg, 2022. "Experiences and Asset Price Dynamics," VfS Annual Conference 2022 (Basel): Big Data in Economics 264017, Verein für Socialpolitik / German Economic Association.
    9. Friedman, Daniel & Habib, Sameh & James, Duncan & Crockett, Sean, 2018. "Varieties of risk elicitation," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2018-501, WZB Berlin Social Science Center.

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    Keywords

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    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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