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Rational expectations in an experimental asset market with shocks to market trends

Philipp Marquardt, Charles Noussair and Martin Weber

European Economic Review, 2019, vol. 114, issue C, 116-140

Abstract: We construct an experimental asset market in which the time trend of the fundamental value is subject to a shock. The design of the experiment allows testing of whether prices adhere to Rational Expectations levels, and whether there is over- or under-reaction to new information. We find that prices conform closely to Rational Expectations and episodes of mispricing are rare. A meta-analysis allows us to update our beliefs about whether experimental asset markets exhibit a generic tendency to misprice, particularly in bearish environments.

Keywords: Experimental asset markets; News reactions; Price discovery; Rational expectations (search for similar items in EconPapers)
JEL-codes: D84 G14 G40 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:114:y:2019:i:c:p:116-140

DOI: 10.1016/j.euroecorev.2019.01.009

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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