The Department of Economics Recruiting Seminar Series presents

"An Experimental Test of the Lucas Asset Pricing Model"
with John Duffy, Professor of Economics, University of Pittsburgh

January 21, 2014
3:30-5:00 p.m.
Social Science Plaza A, Room 2112

Duffy implements a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In one treatment he imposes diminishing marginal returns to cash to incentivize consumption-smoothing across periods, while in a second treatment there is no induced motive for trade. In the former case subjects smooth consumption, and assets trade at a discount relative to the risk-neutral fundamental price. This under-pricing is a departure from the ``bubbles'' observed in the experimental asset pricing experiments of Smith et al. (1988). In his second treatment with no induced motive for trade, assets trade at a premium relative to expected value and shareholdings are highly concentrated.

For further information, please contact Jennifer dos Santos, dayj@uci.edu or 949-824-5788.