Dynamically Complete Experimental Asset Markets

43 Pages Posted: 9 Mar 2008

See all articles by Peter Bossaerts

Peter Bossaerts

University of Melbourne - Department of Finance

Debrah Meloso

Toulouse Business School

William R. Zame

University of California, Los Angeles (UCLA) - Department of Economics

Date Written: December 10, 2007

Abstract

We compare prices and portfolio choices in complete and incomplete experimental financial markets. The incomplete-markets treatment differs from the complete-markets one in that we shut down one market, and that we announce, halfway through trading, which of three states will not occur. The information structure in the incomplete markets is such that these markets satisfy the necessary condition to be dynamically complete. If they are indeed dynamically complete - a property that depends on the preferences of experiment participants, the individual holdings and asset prices in the incomplete-market treatment must be equivalent to those in the complete-market treatment. This is our finding. The distribution of asset holdings is undistinguishable among treatments, and state-price probability rankings coincide and are equilibrium rankings, except for one case, where incomplete markets achieve close-to-equilibrium ranking more often than complete markets.

Keywords: Dynamic completeness, state-price probabilities, market experiment

JEL Classification: G12, D41, D84

Suggested Citation

Bossaerts, Peter L. and Meloso, Debrah C and Zame, William R., Dynamically Complete Experimental Asset Markets (December 10, 2007). EFA 2008 Athens Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1103309 or http://dx.doi.org/10.2139/ssrn.1103309

Peter L. Bossaerts

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Department of Finance
Carlton, Victoria 3010
Australia

HOME PAGE: http://bmmlab.org

Debrah C Meloso (Contact Author)

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

William R. Zame

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States
310-206-9463 (Phone)

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