Multi-period experimental asset markets with distinct fundamental value regimes

Thomas Stöckl (), Jürgen Huber and Michael Kirchler

Experimental Economics, 2015, vol. 18, issue 2, 314-334

Abstract: In this methodological study we analyze price adjustment processes in multi-period laboratory asset markets with five distinct fundamental value $$(\hbox {FV})$$ ( FV ) regimes in a unified framework. Minimizing the effect of between-treatment variations we run markets with deterministically decreasing, constant, randomly fluctuating and—as main innovation—markets with deterministically increasing $$\hbox {FV}$$ FV s. We find (i) efficient pricing in markets with constant $$\hbox {FV}$$ FV s, (ii) overvaluation in markets with decreasing $$\hbox {FV}$$ FV s, and (iii) undervaluation in markets with increasing $$\hbox {FV}$$ FV s. (iv) Markets with randomly fluctuating fundamentals show overvaluation when $$\hbox {FV}$$ FV s predominantly decline and undervaluation when $$\hbox {FV}$$ FV s are mostly upward-sloping. Finally, we document that (v) bid-ask spreads and volatility of price changes are positively correlated with mispricing across regimes. The main contribution of the paper is to provide clean comparisons between distinct $$\hbox {FV}$$ FV regimes, in particular between markets with increasing $$\hbox {FV}$$ FV s and other regimes. Copyright Economic Science Association 2015

Keywords: Experimental finance; Asset market; Bubble; Market efficiency; Fundamental value; C92; D84; G10 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (49)

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DOI: 10.1007/s10683-014-9404-1

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