Pricing Indefinitely Lived Assets: Experimental Evidence

John Duffy, Janet Hua Jiang () and Huan Xie
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Janet Hua Jiang: Banking and Payments, Bank of Canada, Ottawa, Ontario K1A 0G9, Canada

Management Science, 2024, vol. 70, issue 12, 8772-8790

Abstract: We study indefinitely lived assets in experimental markets and find that the traded prices of these assets are on average about 40% of the risk-neutral fundamental value. Neither uncertainty about the value of total dividend payments nor horizon uncertainty about the duration of trade can account for this low traded price. An Epstein-Zin recursive preference specification that models the dynamic realization of dividend payments, combined with either probability weighting or subjects’ heterogeneous risk attitudes, can rationalize the low traded prices observed in our indefinitely lived asset market.

Keywords: asset pricing; behavioral finance; experiments; indefinite horizon; random termination; risk and uncertainty; Epstein–Zin recursive preferences; probability weighting (search for similar items in EconPapers)
Date: 2024
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http://dx.doi.org/10.1287/mnsc.2021.03059 (application/pdf)

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Working Paper: Pricing Indefinitely Lived Assets: Experimental Evidence (2023)
Working Paper: Pricing Indefinitely Lived Assets: Experimental Evidence (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:12:p:8772-8790

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