An Experimental Test of the Lucas Asset Pricing Model
We implement a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In one treatment we impose diminishing marginal returns to cash to incentivize consumption-smoothing across periods, while in a second treatment there is no induced motive for trade. In the former case subjects smooth consumption, and assets trade at a discount relative to the risk-neutral fundamental price. This under-pricing is a departure from the `bubbles` observed in the experimental asset pricing experiments of Smith et al. (1988). In our second treatment with no induced motive for trade, assets trade at a premium relative to expected value and shareholdings are highly concentrated.
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|Date of revision:||May 2013|
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