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'Lucas' In The Laboratory (forthcoming in Journal of Finance)

Author

Listed:
  • Asparouhova, Elena

    (University of Utah)

  • Bossaerts, Peter

    (University of Utah and University of Melbourne)

  • Roy, Nilanjan

    (City University of Hong Kong)

  • Zame, William

    (University of California, Los Angeles)

Abstract

The Lucas asset pricing model is studied here in a controlled setting. Participants could trade two long-lived securities in a continuous open-book system. The experimental design emulated the stationary, infinite-horizon setting of the model and incentivized participants to smooth consumption across periods. Consistent with the model, prices aligned with consumption betas, and they co-moved with aggregate dividends, more strongly so when risk premia were higher. Trading significantly increased consumption smoothing compared to autarky. Nevertheless, as in field markets, prices were excessively volatile. The noise corrupted traditional GMM tests. Choices displayed substantial heterogeneity: no subject was representative for pricing.

Suggested Citation

  • Asparouhova, Elena & Bossaerts, Peter & Roy, Nilanjan & Zame, William, 2015. "'Lucas' In The Laboratory (forthcoming in Journal of Finance)," Economics Series 314, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:314
    as

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    File URL: https://irihs.ihs.ac.at/id/eprint/3587
    File Function: First version, 2015
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    References listed on IDEAS

    as
    1. Klaus Adam & Albert Marcet & Juan Pablo Nicolini, 2016. "Stock Market Volatility and Learning," Journal of Finance, American Finance Association, vol. 71(1), pages 33-82, February.
    2. repec:bla:jfinan:v:59:y:2004:i:4:p:1481-1509 is not listed on IDEAS
    3. Asparouhova, Elena & Bossaerts, Peter & Plott, Charles, 2003. "Excess demand and equilibration in multi-security financial markets: the empirical evidence," Journal of Financial Markets, Elsevier, vol. 6(1), pages 1-21, January.
    Full references (including those not matched with items on IDEAS)

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