An Experimental Study of Bond Market Pricing

Matthias Weber, John Duffy and Arthur Schram

No 161701, Working Papers from University of California-Irvine, Department of Economics

Abstract: An important feature of bond markets is the relationship between initial public offering prices and the probability of the issuer defaulting. First, this probability affects the bond prices. Second, IPO prices determine the default probability. Though market equilibrium has been shown to predict well for other assets, it is a priori unclear whether markets will yield competitive prices when such interaction with the default probability occurs. We develop a flexible bond market model that is easily implemented in the laboratory and examine how subjects price bonds. We find that subjects learn to price bonds well after only a few repetitions.

Keywords: Bond markets; Experimental finance; Experimental markets; Asset pricing; Learning (search for similar items in EconPapers)
JEL-codes: C90 C92 D47 G12 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-08
New Economics Papers: this item is included in nep-exp, nep-fmk and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: An Experimental Study of Bond Market Pricing (2018)
Working Paper: An Experimental Study of Bond Market Pricing (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:161701

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