Rate‐of‐return Parity in Experimental Asset Markets*

Jason Childs and Stuart Mestelman

Review of International Economics, 2006, vol. 14, issue 3, 331-347

Abstract: This paper applies experimental methods to evaluate the completeness of arbitrage and rate‐of‐return parity in simultaneous asset markets in which the assets are denominated in different currencies. Two assets, which return uncertain, but known, dividends in each trading period, are traded over 20 periods, after which the asset has no value. Results indicate that risk‐neutral rate‐of‐return parity is a strong predictor of relative asset prices when assets have common expected dividends and the expected dividends have common variances. The predictive power of risk‐neutral rate‐of‐return parity is reduced as the assets become differentiated.

Date: 2006
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https://doi.org/10.1111/j.1467-9396.2006.00590.x

Related works:
Working Paper: Rate of Return Parity in Experimental Asset Markets (2004)
Working Paper: Rate of Return Parity in Experimental Asset Markets (2004)
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