The Effect of Favorable and Unfavorable Shocks on Asset

Charles Noussair, Steven Tucker and Mark Ryan

No 2021-03, Experimental Economics Center Working Paper Series from Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University

Abstract: We study experimental markets in which the fundamental value is subject to shocks. Participants trade in a sequence of three markets, which allows the effect of experience with both positive and negative shocks to be studied. The results reveal asymmetries in the speed of price discovery; there is more underreaction to positive than to negative shocks. Both cognitive ability, as captured in the CRT test, and understanding of the fundamental value process, as measured with quizzes administered after each market, are determinants of individual earnings. Price bubbles in markets with high cash to asset ratios do not dissipate with experience, even when the fundamental value trajectory is constant over time.

Keywords: Asset Market Experiments; Bubbles; Market Shocks; Market Efficiency (search for similar items in EconPapers)
Pages: 27
Date: 2021-04
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Persistent link: https://EconPapers.repec.org/RePEc:exc:wpaper:2021-03

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