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The impact of asset purchases in an experimental market with consumption smoothing motives

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  • Duan, Jieyi
  • Hanaki, Nobuyuki

Abstract

We investigate the effect of preannounced market intervention on an asset price as well as participants' welfare in an experimental framework where participants have consumption smoothing motives to trade the asset. The results show that, on the one hand, the preannounced intervention results in significantly larger overpricing of the asset relative to the rational expectations equilibrium level in periods prior to the intervention compared with the treatment without it. The participants' welfare, measured by the discounted sum of the payoffs at the beginning of the experiment, on the other hand, are not significantly worsened by the intervention.

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  • Duan, Jieyi & Hanaki, Nobuyuki, 2023. "The impact of asset purchases in an experimental market with consumption smoothing motives," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:dyncon:v:156:y:2023:i:c:s0165188923001604
    DOI: 10.1016/j.jedc.2023.104754
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    Cited by:

    1. Jieyi Duan & Nobuyuki Hanaki, "undated". "An experimental analysis on cross-asset arbitrage opportunity and the law of one price," ISER Discussion Paper 1257, Institute of Social and Economic Research, Osaka University.

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    More about this item

    Keywords

    Asset pricing; Consumption smoothing; Bounded rationality; Quantitative easing;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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