Peaks and Valleys: Experimental Asset Markets with Non-Monotonic Fundamentals
CentER Discussion Paper Series No. 2008-49
41 Pages Posted: 27 May 2008
Date Written: April 2008
We report the results of an experiment designed to measure how well asset market prices track fundamentals when the latter experience peaks and troughs. We observe greater price efficiency in markets in which fundamentals rise to a peak and then decline, than in markets in which fundamentals decline to a trough and undergo a subsequent increase. The findings demonstrate that the characteristics of the time path of the fundamental value can influence the degree of market efficiency.
Keywords: bubble, peak, experiment
JEL Classification: C9, G10
Suggested Citation: Suggested Citation