Rate of Return Parity in Experimental Asset Markets

Jason Childs and Stuart Mestelman

Department of Economics Working Papers from McMaster University

Abstract: This paper applies experimental methods to evaluate the completeness of arbitrage and rate of return parity in simultaneous asset markets in which the assets are denominated in different currencies. Two assets, which return uncertain, but known, dividends in each trading period, are traded over twenty periods, after which the asset has no value. Results indicate that risk neutral rate of return parity is a strong predictor of relative asset prices when assets have common expected dividends and the expected dividends have common variances. The predictive power of risk neutral rate of return parity is reduced as the assets become differentiated.

JEL-codes: C92 G15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2004-01
New Economics Papers: this item is included in nep-fin
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http://socserv.mcmaster.ca/econ/rsrch/papers/archive/rrp2004jan27.pdf (application/pdf)

Related works:
Journal Article: Rate‐of‐return Parity in Experimental Asset Markets* (2006)
Working Paper: Rate of Return Parity in Experimental Asset Markets (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2004-01

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