TY - JOUR
T1 - Rational expectations in an experimental asset market with shocks to market trends
AU - Marquardt, Philipp
AU - Noussair, Charles N.
AU - Weber, Martin
N1 - Funding Information:
We thank the editor and two anonymous referees for their valuable feedback. We also thank the German Research Foundation (DFG, Project ID: we993/15-1) for providing funding for this research. We also thank participants at the 2016 Experimental Finance Conference (Mannheim, Germany), the 2016 Economic Science Association North American Meetings (Tucson, Arizona, USA), the 2016 BEAM Workshops at Waseda University (Tokyo, Japan) and at the University Nice Sophia Antipolis (Nice, France), as well as the Research Seminar in Finance and Banking at Mannheim University, for helpful comments. We also thank John List for his comments on an earlier version of the paper.
Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2019/5
Y1 - 2019/5
N2 - 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.
AB - 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.
KW - Experimental asset markets
KW - News reactions
KW - Price discovery
KW - Rational expectations
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U2 - 10.1016/j.euroecorev.2019.01.009
DO - 10.1016/j.euroecorev.2019.01.009
M3 - Article
AN - SCOPUS:85062637629
VL - 114
SP - 116
EP - 140
JO - European Economic Review
JF - European Economic Review
SN - 0014-2921
ER -