'Lucas' In The Laboratory

Asparouhova, Elena and Bossaerts, Peter and Roy, Nilanjan and Zame, William (June 2015) 'Lucas' In The Laboratory. IHS Economics Series 314, 95 p.

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Abstract or Table of Contents

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.

Item Type: IHS Series
Additional Information: forthcoming in Journal of Finance
Status: Published
Date Deposited: 22 Jun 2015 11:58
Last Modified: 24 Jul 2017 18:35
URI: http://irihs.ihs.ac.at/id/eprint/3587

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