'Lucas' In The Laboratory
This paper reports on experimental tests of an instantiation of the Lucas asset pricing model with heterogeneous agents and time-varying private income streams. Central features of the model (infinite horizon, perishability of consumption, stationarity) present difficult challenges and require a novel experimental design. The experimental evidence provides broad support for the qualitative pricing and consumption predictions of the model (prices move with fundamentals, agents smooth consumption) but sharp differences from the quantitative predictions emerge (asset prices display excess volatility, agents do not hedge price risk). Generalized Method of Moments (GMM) tests of the stochastic Euler equations yield very different conclusions depending on the instruments chosen. It is suggested that the qualitative agreement with and quantitative deviation from theoretical predictions arise from agents' expectations about future prices, which are almost self-fulfilling and yet very different from what they would need to be if they were exactly self-fulfilling (as the Lucas model requires).
|Date of creation:||May 2013|
|Date of revision:|
|Publication status:||published as ELENA ASPAROUHOVA & PETER BOSSAERTS & NILANJAN ROY & WILLIAM ZAME, 2016. "“Lucas” In The Laboratory," The Journal of Finance, , pages n/a-n/a.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Albert Marcet & Klaus Adam & Juan Pablo Nicolini, 2008.
"Stock Market Volatility and Learning,"
UFAE and IAE Working Papers
732.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Adam, Klaus & Marcet, Albert & Nicolini, Juan Pablo, 2007. "Stock Market Volatility and Learning," CEPR Discussion Papers 6518, C.E.P.R. Discussion Papers.
- Adam, Klaus & Marcet, Albert & Nicolini, Juan Pablo, 2012. "Stock Market Volatility and Learning," Working Papers 12-06, University of Mannheim, Department of Economics.
- Klaus Adam & Albert Marcet & Juan Pablo Nicolini, 2014. "Stock Market Volatility and Learning," Working Papers 336, Barcelona Graduate School of Economics.
- Klaus Adam & Albert Marcet & Juan Pablo Nicolini, 2011. "Stock Market Volatility and Learning," CEP Discussion Papers dp1077, Centre for Economic Performance, LSE.
- Adam, Klaus & Marcet, Albert & Nicolini, Juan Pablo, 2015. "Stock Market Volatility and Learning," Working Papers 720, Federal Reserve Bank of Minneapolis.
- Adam, Klaus & Marcet, Albert & Nicolini, Juan Pablo, 2008. "Stock market volatility and learning," Working Paper Series 0862, European Central Bank.
- Timothy J Kehoe & David K Levine, 1993.
"Debt Constrained Asset Markets,"
Levine's Working Paper Archive
1276, David K. Levine.
- Dunn, Kenneth B. & Singleton, Kenneth J., 1986. "Modeling the term structure of interest rates under non-separable utility and durability of goods," Journal of Financial Economics, Elsevier, vol. 17(1), pages 27-55, September.
- repec:pit:wpaper:398 is not listed on IDEAS
- R. Mehra & E. Prescott, 2010.
"The equity premium: a puzzle,"
Levine's Working Paper Archive
1401, David K. Levine.
- Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March.
- Kenneth L. Judd & Felix Kubler & Karl Schmedders, 2000.
"Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents,"
1294, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kenneth L. Judd & Felix Kubler & Karl Schmedders, 2003. "Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents," Journal of Finance, American Finance Association, vol. 58(5), pages 2203-2218, October.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
- Ian Martin, 2013.
"The Lucas Orchard,"
Econometric Society, vol. 81(1), pages 55-111, 01.
- repec:pit:wpaper:504 is not listed on IDEAS
- Elena Asparouhova, 2006. "Competition in Lending: Theory and Experiments," Review of Finance, European Finance Association, vol. 10(2), pages 189-219.
- Thomas M. Mertens & Tarek A. Hassan, 2010.
"The Social Cost of Near-Rational Investment,"
2010 Meeting Papers
370, Society for Economic Dynamics.
- Tarek A. Hassan & Thomas M. Mertens, 2011. "The Social Cost of Near-Rational Investment," NBER Working Papers 17027, National Bureau of Economic Research, Inc.
- Hassan, Tarek & Mertens, Thomas M., 2014. "The Social Cost of Near-Rational Investment," CEPR Discussion Papers 10007, C.E.P.R. Discussion Papers.
- Duffie, J Darrell & Huang, Chi-fu, 1985. "Implementing Arrow-Debreu Equilibria by Continuous Trading of Few Long-lived Securities," Econometrica, Econometric Society, vol. 53(6), pages 1337-56, November.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:19068. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.