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Multi-period experimental asset markets with distinct fundamental value regimes

Published online by Cambridge University Press:  14 March 2025

Thomas Stöckl ,
Jürgen Huber  and
Michael Kirchler
Thomas Stöckl*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, Austria
Jürgen Huber*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, Austria
Michael Kirchler*
Affiliation:
Department of Banking and Finance, Innsbruck University School of Management, Universitätsstrasse 15, 6020 Innsbruck, Austria Department of Economics, Centre for Finance, University of Gothenburg, P.O. Box 600, 40530 Göteborg, Sweden
*
thomas.stoeckl@uibk.ac.at
juergen.huber@uibk.ac.at
michael.kirchler@uibk.ac.at
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Abstract

In this methodological study we analyze price adjustment processes in multi-period laboratory asset markets with five distinct fundamental value (FV) regimes in a unified framework. Minimizing the effect of between-treatment variations we run markets with deterministically decreasing, constant, randomly fluctuating and—as main innovation—markets with deterministically increasing FVs. We find (i) efficient pricing in markets with constant FVs, (ii) overvaluation in markets with decreasing FVs, and (iii) undervaluation in markets with increasing FVs. (iv) Markets with randomly fluctuating fundamentals show overvaluation when FVs predominantly decline and undervaluation when FVs are mostly upward-sloping. Finally, we document that (v) bid-ask spreads and volatility of price changes are positively correlated with mispricing across regimes. The main contribution of the paper is to provide clean comparisons between distinct FV regimes, in particular between markets with increasing FVs and other regimes.

Keywords

Experimental financeAsset marketBubbleMarket efficiencyFundamental value

JEL classification

D84: Expectations • Speculations G10: General C92: Laboratory, Group Behavior

Information

Type
Original Paper
Information
Experimental Economics , Volume 18 , Issue 2 , June 2015 , pp. 314 - 334
Copyright
Copyright © 2014 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (doi:https://doi.org/10.1007/s10683-014-9404-1) contains supplementary material, which is available to authorized users.

An erratum to this article can be found at 10.1007/s10683-015-9441-4.

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