Date: 2018
Type: Article
An experimental study of bond market pricing
Journal of finance, 2018, Vol. 73, No. 4, pp. 1857-1892
WEBER, Matthias, DUFFY, John, SCHRAM, Arthur, An experimental study of bond market pricing, Journal of finance, 2018, Vol. 73, No. 4, pp. 1857-1892
- https://hdl.handle.net/1814/59932
Retrieved from Cadmus, EUI Research Repository
An important feature of bond markets is the relationship between the initial public offering (IPO) price and the probability that the issuer defaults. On the one hand, the default probability affects the IPO price on the other hand, the IPO price affects the default probability. It is a priori unclear whether agents can competitively price such assets. Our paper is the first to explore this question. To do so, we use laboratory experiments. We develop two flexible bond market models that are easily implemented in the laboratory. We find that subjects learn to price the bonds well after only a few repetitions.
Additional information:
First published: 10 May 2018
Cadmus permanent link: https://hdl.handle.net/1814/59932
Full-text via DOI: 10.1111/jofi.12695
ISSN: 0022-1082; 1540-6261
Publisher: Wiley
Keyword(s): Experimental asset markets Divisible good auctions Financial markets Stock prices Bubbles Expectations Information Feedback Crashes Risk
Sponsorship and Funder information:
Netherlands' Organization for Scientific Research (NWO) [406-11-022] Research Priority Area Behavioral Economics of the University of Amsterdam UC Irvine School of Social Sciences
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