Experimental Asset Markets with An Indefinite Horizon
John Duffy (),
Janet Hua Jiang and
CIRANO Working Papers from CIRANO
We study the trade of indefinitely-lived assets in experimental markets. The traded prices of these assets are on average more than 40% below the risk-neutral fundamental value under the expected utility assumption. We examine the effects of three interrelated factors for the traded price, payoff uncertainty about the asset’s dividend payments, horizon uncertainty about the duration of trade, and the expected utility assumption. Our results suggest that horizon uncertainty does not significantly affect the traded price. Incorporating risk aversion into non-expected utility models with recursive preferences and probability weighting can rationalize the low prices observed in our indefinite-horizon asset markets.
Keywords: Asset Pricing; Behavioral Finance; Experiments; Indefinite Horizon; Random Termination; Risk and Uncertainty; Expected Utility; Epstein-Zin Recursive Preferences; Probability Weighting (search for similar items in EconPapers)
JEL-codes: C91 C92 D81 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-upt
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Working Paper: Experimental Asset Markets with an Indefinite Horizon (2019)
Working Paper: Experimental Asset Markets with An Indefinite Horizon
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2019s-15
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