Download This PaperAn Experimental Study of Bond Market Pricing
105 Pages Posted: 9 Aug 2016 Last revised: 13 Nov 2017
Date Written: November 10, 2017
Abstract
An important feature of bond markets is the relationship between the IPO price and the probability that the issuer defaults. On the one hand, the default probability affects the IPO price. On the other hand, IPO prices affect the default probability. It is a priori unclear whether agents can competitively price such assets and our paper is the first to explore this question. We do so using laboratory experiments. We develop two flexible bond market models that are easily implemented in the laboratory. We find that subjects learn to price the bonds well after only a few repetitions.
Keywords: experimental finance, asset pricing, bond markets, real effects of financial markets, experimental markets
JEL Classification: C92, C90, G12, D47
Suggested Citation: Suggested Citation
Matthias Weber (Contact Author)
University of St. Gallen - School of Finance ( email )
Unterer Graben 21
St.Gallen, CH-9000
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland