Trading at prices above the fundamental value of an asset, i.e. a bubble, has been verified and replicated in laboratory asset markets for the past seven years. To date, only common group experience provides minimal conditions for common investor sentiment and trading at fundamental value. Rational expectations models do not predict the bubble and crash phenomena found in these experimental mar...

Instead of modeling asset price and currency risks separately, this paper derives the international hedge portfolio, hedging asset price and currency risk simultaneously for estimating the dynamic international optimal hedge ratio. The model estimation is specified in a multivariate GARCH setting with vector error correction terms and estimated for the commodity and stock markets of the U.S., t...

This paper formalizes the idea that more hedging instruments may destabilize markets when traders have heterogeneous expectations and adapt their behavior according to experience based reinforcement learning. In a simple asset pricing model with heterogeneous beliefs the introduction of additional Arrow securities may destabilize markets, and thus increase price volatility, and at the same time...

In the model of asset appreciation advanced here, the market economy and the market of asset claims on the economy are modeled as organic (or exponential growth) processes, similar to those commonly seen in nature and the biological sciences. In this model, investors have a log-wealth utility function. Within the framework, the market risk premium is derived as the premium that balances supply ...

Prior studies have shown that traders quickly converge to the price-quantity equilibrium in markets for goods that are immediately consumed, but they produce speculative price bubbles in resalable asset markets. We present a stock-flow model of durable assets in which the existing stock of assets is subject to depreciation and producers may produce additional units of the asset. In our laborato...

A cademic Ž nance has evolved a long way from the days when the efŽ cient markets theory was widely considered to be proved beyond doubt. Behavioral Ž nance—that is, Ž nance from a broader social science perspective including psychology and sociology—is now one of the most vital research programs, and it stands in sharp contradiction to much of efŽ cient markets theory. The efŽ cient markets th...

Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messag...

The CAPM as the benchmark asset pricing model generally performs poorly in both developed and emerging markets. We investigate whether allowing the model parameters to vary improves the performance of the CAPM and the Fama-French model. Conditional asset pricing models scaled by conditional variables such as Trading Volume and Dividend Yield generally result in small pricing errors. However, a ...

The purpose of this conference on real estate indicators and financial stability is “to promote the development of reliable, timely and consistent statistics on real estate prices” in order to support policy initiatives to promote macroeconomic stability. The recent volatility of asset prices and the Asian financial crisis of 1997 have focused attention on the role of asset markets and, in part...

This paper studies the contagion of fire sale across asset markets through the price effect. When a distressed trader liquidates her stock holding quickly, the fire sale will depress the asset price and other shareholders will incur mark-to-market losses. If the losses are large enough, these shareholders may also have to liquidate other assets they hold, and the liquidation can spread out and ...