Rational expectations in an experimental asset market with shocks to market trends

Philipp Marquardt, Charles N. Noussair, Martin Weber

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)116-140
Number of pages25
JournalEuropean Economic Review
Volume114
DOIs
StatePublished - May 2019

Keywords

  • Experimental asset markets
  • News reactions
  • Price discovery
  • Rational expectations

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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