Multi-period experimental asset markets with distinct fundamental value regimes

Abstract

In this methodological study we analyze price adjustment processes in multi-period laboratory asset markets with five distinct fundamental value $$(\hbox {FV})$$ ( FV ) regimes in a unified framework. Minimizing the effect of between-treatment variations we run markets with deterministically decreasing, constant, randomly fluctuating and—as main innovation—markets with deterministically increasing $$\hbox {FV}$$ FV s. We find (i) efficient pricing in markets with constant $$\hbox {FV}$$ FV s, (ii) overvaluation in markets with decreasing $$\hbox {FV}$$ FV s, and (iii) undervaluation in markets with increasing $$\hbox {FV}$$ FV s. (iv) Markets with randomly fluctuating fundamentals show overvaluation when $$\hbox {FV}$$ FV s predominantly decline and undervaluation when $$\hbox {FV}$$ FV s are mostly upward-sloping. Finally, we document that (v) bid-ask spreads and volatility of price changes are positively correlated with mispricing across regimes. The main contribution of the paper is to provide clean comparisons between distinct $$\hbox {FV}$$ FV regimes, in particular between markets with increasing $$\hbox {FV}$$ FV s and other regimes. Copyright Economic Science Association 2015