Expectations Structure in Asset Pricing Experiments
Title | Expectations Structure in Asset Pricing Experiments PDF eBook |
Author | |
Publisher | |
Pages | |
Release | 2003 |
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ISBN |
Notwithstanding the recognized importance of traders & rsquo; expectations in characterizing the observed market dynamics, for instance the formation of speculative bubbles and crashes on financial markets, little attention has been devoted so far by economists to a rigorous study of expectation formation in the laboratory. In this work we describe a laboratory experiment on the emergence and coordination of expectations in a pure exchange framework. We largely base our study on previous experiments on expectation formation in a controlled laboratory environment by Cars Hommes, Joep Sonnemans, Ian Tuinstra and Henk van de Velden (2002a). We consider a simple two asset economy with a riskless bond and a risky stock. Each market is composed of six experimental subjects who act as financial advisors of myopic risk-averse utility maximizing investors and are rewarded according to how well their forecasts perform in the market. The participants are asked to predict not only the price of the risky asset at time t+1, as in Hommes et al. (2002a), but also the confidence interval of their prediction, knowing the past realizations of the price until time t ¡ 1. The realized asset price is derived from a Walrasian market equilibrium equation, unknown to the subjects, with feedback from individual forecasts. Subjects & rsquo; earnings are proportional to the increase in their wealth level. With respect to previous experiments that did not include an explicit evaluation of risk by participants, we observe a higher price volatility, a decreased likelihood of bubble dynamics and, in general, a higher heterogeneity of predictions. -- experimental economics ; expectations ; coordination ; asset pricing
Coordination of Expectations in Asset Pricing Experiments
Title | Coordination of Expectations in Asset Pricing Experiments PDF eBook |
Author | Cars H. Hommes |
Publisher | |
Pages | |
Release | 2010 |
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ISBN |
We investigate expectation formation in a controlled experimental environment. Subjects are asked to predict the price in a standard asset pricing model. They do not have knowledge of the underlying market equilibrium equations, but they know all past realized prices and their own predictions. Aggregate demand for the risky asset depends upon the forecasts of the participants. The realized price is then obtained from market equilibrium with feedback from six individual expectations. Realized prices differ significantly from fundamental values and typically exhibit oscillations around, or slow convergence to, this fundamental. In all groups participants coordinate on a common prediction strategy.
Coordination of Expectations in Asset Pricing Experiments
Title | Coordination of Expectations in Asset Pricing Experiments PDF eBook |
Author | Cars Hommes |
Publisher | |
Pages | 28 |
Release | 2003 |
Genre | |
ISBN |
Expectation formation in dynamic market experiments
Title | Expectation formation in dynamic market experiments PDF eBook |
Author | Peter Heemeijer |
Publisher | Rozenberg Publishers |
Pages | 308 |
Release | 2009 |
Genre | |
ISBN | 9036101158 |
Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems
Title | Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems PDF eBook |
Author | Cars Hommes |
Publisher | Cambridge University Press |
Pages | 273 |
Release | 2013-01-24 |
Genre | Business & Economics |
ISBN | 110701929X |
Recognising that the economy is a complex system with boundedly rational interacting agents, applies complexity modelling to economics and finance.
Coordination of Expectations in Asset Pricing Experiments
Title | Coordination of Expectations in Asset Pricing Experiments PDF eBook |
Author | |
Publisher | |
Pages | |
Release | 2004 |
Genre | |
ISBN |
Nonlinear Dynamics and Heterogeneous Interacting Agents
Title | Nonlinear Dynamics and Heterogeneous Interacting Agents PDF eBook |
Author | Thomas Lux |
Publisher | Springer Science & Business Media |
Pages | 326 |
Release | 2006-06-06 |
Genre | Business & Economics |
ISBN | 3540272968 |
Economic application of nonlinear dynamics, microscopic agent-based modelling, and the use of artificial intelligence techniques as learning devices of boundedly rational actors are among the most exciting interdisciplinary ventures of economic theory over the past decade. This volume provides us with a most fascinating series of examples on "complexity in action" exemplifying the scope and explanatory power of these innovative approaches.