Experimental Research on Asset Pricing

Noussair, Charles; Tucker, Steven

doi:10.1002/9781118790700.ch9

Cited by 33 publications

(36 citation statements)

References 66 publications

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“…As laboratory experimentation allows for a level of control that is unattainable in the field, a rich literature on experimental asset markets has evolved. 1 Bossaerts (2009), Noussair and Tucker (2013), and Palan (2013) review this literature. In most experimental asset markets, trading is limited to a single asset, though some experiments allow for trades in multiple assets (Childs and Mestelman, 2006, Kleinlercher et al, 2014, Duffy et al, 2019 and some studies allow subjects to trade derivative assets (futures, options) on the principal asset of the market (e.g., Forsythe et al, 1982, Friedman et al, 1983, Forsythe et al, 1984, Friedman et al, 1984, Porter and Smith, 1995, Jong et al, 2006, Palan, 2010.…”

Section: Introductionmentioning

confidence: 99%

Credit Default Swap Regulation in Experimental Bond Markets

2019

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Credit default swaps (CDS) played an important role in the financial crisis of 2008. While CDS can be used to hedge risks, they can also be used for speculative purposes (as occurred during the financial crisis) and regulations have been proposed to limit such speculative use. Here, we provide the first controlled experiment analyzing the pricing of credit default swaps in a bond market subject to default risk. We further use the laboratory as a testbed to analyze CDS regulation. Our results show that the regulation achieves the goal of increasing the use of CDS for hedging purposes while reducing the use of CDS for speculation. This success does not come at the expense of lower bond IPO revenues and does not negatively affect CDS prices or bond prices in the secondary market.

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Section: Introductionmentioning

confidence: 99%

Credit Default Swap Regulation in Experimental Bond Markets

2019

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“…A major theme in the experimental asset market literature has been the search for means to eliminate mispricing. Short selling, buying on margin, pricing collars, futures markets have all been found to have only limited success in reducing mispricing (King, Smith, Williams, and Van Boening 1993;Haruvy and Noussair 2006;Porter and Smith 1995; Xu 2016; see also Tucker 2013 andPalan 2013 for surveys). Subject sophistication has also been questioned, but King, Smith, Williams, and Van Boening (1993) found that professional traders also generated speculative bubbles (see also Weitzel, Huer, Huber, Kirchler, Lindner, and Rose 2018).…”

Section: Introductionmentioning

confidence: 99%

Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?

Deck

Servátka²,

Tucker

2019

SSRN Journal

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The bubble and burst pattern in asset market experiments is among the most replicable results in experimental economics. Numerous studies have searched for means to reduce this mispricing. Using controlled laboratory experiments, we compare mispricing in standard double auction markets to prices in two clock auctions. The double Dutch auction, shown to be more efficient than the double auction in commodity market experiments, does not eliminate bubbles. However, the English Dutch auction does yield prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in the common declining fundamental value environment.

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“…Such consecutive bubbles seem to speed up rather than slow down and subjects (2010), Cheung and Palan (2012), Kirchler et al (2012), Sutter et al (2012), Huber and Kirchler (2012), Cheung et al (2014), Füllbrunn et al (2014b), , Holt et al (2017), Hoshihata et al (2017), and Bosch-Rosa et al (2018). Bossaerts (2009), Noussair and Tucker (2013), Palan (2013), and Nuzzo and Morone (2017) review the literature.…”

Section: Introductionmentioning

confidence: 99%

Experience Does not Eliminate Bubbles: Experimental Evidence

Kopányi-Peuker¹,

Weber²

2018

Preprint

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We study the role of experience in the formation of asset price bubbles. Therefore, we conduct two related experiments. One is a call market experiment in which participants trade assets with each other. The other is a learning-to-forecast experiment in which participants only forecast future prices, while the trade, which is based on these forecasts, is computerized. Each experiment comprises three treatments that vary the amount of information about the fundamental value that participants receive. Each market is repeated three times. In both experiments and in all treatments, we observe sizable bubbles. These bubbles do not disappear with experience. Our findings in the call market experiment stand in contrast to the literature. Our findings in the learning- to-forecast experiment are novel. Interestingly, the shape of the bubbles is different between the two experiments. We observe flat bubbles in the call market experiment and boom-and-bust cycles in the learning-to-forecast experiment.

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Experimental Research on Asset Pricing

Cited by 33 publications

References 66 publications

Credit Default Swap Regulation in Experimental Bond Markets

Credit Default Swap Regulation in Experimental Bond Markets

Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?

Experience Does not Eliminate Bubbles: Experimental Evidence

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