An experimental study of bond market pricing
Title: An experimental study of bond market pricing
Citation: Journal of finance, 2018, Vol. 73, No. 4, pp. 1857-1892
ISSN: 0022-1082; 1540-6261
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.
Subject: Experimental asset markets; Divisible good auctions; Financial-markets; Stock-prices; Bubbles; Expectations; Information; Feedback; Crashes; Risk
First published: 10 May 2018
Type of Access: embargoedAccess
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