Futures markets, cognitive ability, and mispricing in experimental asset markets

Charles Noussair, Steven Tucker and Yilong Xu

Journal of Economic Behavior & Organization, 2016, vol. 130, issue C, 166-179

Abstract: We study the effect of a futures market, in which contracts maturing in the last period of the life of the asset can be traded. Our experiment has two treatments, one in which a spot market operates on its own, and a second treatment, in which a spot and a futures market are active simultaneously. Futures markets lower spot prices, but increase price volatility. The futures markets themselves exhibit considerable overpricing. Individuals with higher cognitive reflection test (CRT) scores achieve greater earnings, and tend to sell in the overpriced futures market, while traders with lower CRT scores make purchases in the futures market. Greater average CRT score among a group of traders is associated with better price discovery when no futures market is present but there is no such relationship in the presence of a futures market. Modified measures of CRT, which take into account different types of incorrect responses, are introduced.

Keywords: Asset market experiment; Market institution; Futures market (search for similar items in EconPapers)
JEL-codes: C91 G13 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (67)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268116301391
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:130:y:2016:i:c:p:166-179

DOI: 10.1016/j.jebo.2016.07.010

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().