Rational Expectations in an Experimental Asset Market with Shocks to Market Trends

Philipp Marquardt, Charles N. Noussair and Martin Weber

No 2018-10, Experimental Economics Center Working Paper Series from Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University

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 (search for similar items in EconPapers)
JEL-codes: D84 G14 G40 (search for similar items in EconPapers)
Pages: 53
Date: 2018-12
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Persistent link: https://EconPapers.repec.org/RePEc:exc:wpaper:2018-10

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