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The Impact of Asset Repurchases and Issues in an Experimental Market

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  • Haruvy, E.
  • Noussair, C.N.

    (Tilburg University, Center For Economic Research)

  • Powell, O.R.

    (Tilburg University, Center For Economic Research)

Abstract

Abstract: We create an experimental asset market in which we conduct share repurchases and share issues. Although the intrinsic value of the shares is independent of the quantity outstanding, the interventions result in changes in asset price. Specifically, we find the following. (1) A repurchase of shares increases the price of the asset, and a share issue decreases the price of the asset, compared to a benchmark of no intervention. These effects are consistent with downward-sloping demand for the asset. (2) The empirical patterns observed are consistent with a model based on that proposed by DeLong et al. (1990), which posits three trader types-- fundamental, speculator, and momentum-interacting in the market. (3) The downward pressure on prices resulting from share issues drives prices down toward, but not beyond, fundamental values. This downward resistance at the fundamental value is predicted by the model, in which it arises from the impact of an intervention on the proportion of the total stock of units and cash held by each trader type.

Suggested Citation

  • Haruvy, E. & Noussair, C.N. & Powell, O.R., 2012. "The Impact of Asset Repurchases and Issues in an Experimental Market," Discussion Paper 2012-092, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:8f1cf177-abfb-4cf3-8649-0292b1b5f442
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    Cited by:

    1. Stephen Cheung & Stefan Palan, 2012. "Two heads are less bubbly than one: team decision-making in an experimental asset market," Experimental Economics, Springer;Economic Science Association, vol. 15(3), pages 373-397, September.
    2. Norbert Christopeit & Michael Massmann, 2013. "Estimating Structural Parameters in Regression Models with Adaptive Learning," Tinbergen Institute Discussion Papers 13-111/III, Tinbergen Institute.
    3. Giusti, G. & Noussair, C.N. & Voth, H-J., 2013. "Recreating the South Sea Bubble : Lessons from an Experiment in Financial History," Discussion Paper 2013-042, Tilburg University, Center for Economic Research.
    4. Breaban, A.G. & Noussair, C.N., 2014. "Fundamental Value Trajectories and Trader Characteristics in an Asset Market Experiment," Discussion Paper 2014-010, Tilburg University, Center for Economic Research.
    5. Bao, T. & Hommes, C.H. & Makarewicz, T.A., 2014. "Bubble Formation and (In)efficient Markets in Learning-to-Forecast and -Optimize Experiments," CeNDEF Working Papers 14-01, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    6. Breaban, A.G., 2014. "Behavior and asset markets : Individual decisions, emotions and fundamental value trajectories," Other publications TiSEM a20e6a40-f15e-4331-83cb-c, Tilburg University, School of Economics and Management.
    7. Kirchler, Michael & Bonn, Caroline & Huber, Jürgen & Razen, Michael, 2015. "The “inflow-effect”—Trader inflow and price efficiency," European Economic Review, Elsevier, vol. 77(C), pages 1-19.
    8. Michael Kirchler & Caroline Bonn & J�rgen Huber & Michael Razen, 2014. "The �Inflow-Effect� � Trader Inflow and Bubble Formation in Asset Markets," Working Papers 2014-22, Faculty of Economics and Statistics, University of Innsbruck.
    9. Owen Powell & Natalia Shestakova, 2017. "The robustness of mispricing results in experimental asset markets," Vienna Economics Papers 1702, University of Vienna, Department of Economics.
    10. Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, July.

    More about this item

    Keywords

    experiment; share issue; share repurchase; bubble;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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