We investigate expectation formation in a controlled experimental en-vironment. Subjects are asked to predict the price in a standard asset pricingmodel. They do not have knowledge of the underlying market equilibrium equa-tions, but they know all past realized prices and their own predictions....

The goal of this paper is to study how informational frictions affect asset liquidity in OTC markets in a laboratory setting. The experiments replicate an OTC market similar to the one used in monetary and financial economics (Shi, 1995; Trejos and Wright, 1995; Duffie, Garleanu, and Pedersen, 2005):...

This paper examines how the incumbent issuer-pay credit rating agencies (CRAs) in China adjust their rating strategies as a response to the entry of an independent rating agency, China Bond Rating (CBR), which utilizes a combination of public utility and investor-pay business model. We find that...

We propose a simple measure of investor sophistication based on financial statement experience derived from publicly available EDGAR log data about accounting information acquisition activity. This approach allows us to provide unique empirical evidence for the existence of attention induced...

We investigate how informational frictions affect trading in decentralized markets in theory and in a laboratory setting. Subjects, matched pairwise at random, trade divisible commodities that have different private values for a divisible asset with a common value (interpreted as money). We...

We study the use of trading strategies and their profitability in experimental asset markets with asymmetrically informed traders. We find that insiders make most of their profits from trades which are initiated by their limit orders -- especially at the beginning of a period and when the change...

Using the SEC’s 2016 Tick Size Pilot Program (TSPP) as a natural experiment, we investigate the effects of investors’ information acquisition on equity versus debt financing. We find a significant increase in firms’ preference for equity over debt issuance after the TSPP’s...

We present a new theory of asset pricing and portfolio choices under asymmetric reasoning, contrast the predictions with those under asymmetric information, and present experimental evidence in favor of our theory. The Efficient Markets Hypothesis and its formal foundation, the Rational...

This paper proposes a theoretical analysis on the impacts of using a suboptimal information set on the three main components used in asset pricing, namely the risk physical and neutral measures and the relative pricing kernel.The analysis is carried out by means of a portfolio optimization...

We perform an asset market experiment in order to investigate whether overconfidence induces trading. We investigate three manifestations of overconfidence: calibration-based overconfidence, the better-than-average effect and illusion of control. Novelly, the measure employed for...