CaltechAUTHORS
  A Caltech Library Service

Prices and Portfolio Choices in Financial Markets: Theory, Econometrics, Experiments

Bossaerts, Peter and Plott, Charles and Zame, William R. (2007) Prices and Portfolio Choices in Financial Markets: Theory, Econometrics, Experiments. Econometrica, 75 (4). pp. 993-1038. ISSN 1468-0262. https://resolver.caltech.edu/CaltechAUTHORS:BOSe07

[img]
Preview
PDF - Published Version
See Usage Policy.

429Kb

Use this Persistent URL to link to this item: https://resolver.caltech.edu/CaltechAUTHORS:BOSe07

Abstract

Many tests of asset-pricing models address only the pricing predictions, but these pricing predictions rest on portfolio choice predictions that seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices based on unobserved heterogeneity. This approach yields the standard pricing conclusions of classical models but is consistent with very different portfolio choices. Novel econometric tests link the price and portfolio predictions and take into account the general equilibrium effects of sample-size bias. This paper works through the approach in detail for the case of the classical capital asset pricing model (CAPM), producing a model called CAPM+ε. When these econometric tests are applied to data generated by large-scale laboratory asset markets that reveal both prices and portfolio choices, CAPM+εis not rejected.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1111/j.1468-0262.2007.00780.xDOIUNSPECIFIED
http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0262.2007.00780.x/abstractPublisherUNSPECIFIED
ORCID:
AuthorORCID
Bossaerts, Peter0000-0003-2308-2603
Additional Information:© 2007 Econometric Society. Manuscript received July, 2003; final revision received March, 2007. Article first published online: 15 Jun. 2007. We thank seminar audiences at the Atlanta Finance Forum, Bachelier Finance Society International Congress, CMU, CEPR, CIDE, Erasmus University, Harvard University, Insead, IDEI, London Business School, NBER, RFS Conference on Behavioral and Experimental Finance, Rice University, SWET, UC Berkeley, UCLA, UC Riverside, University of Chicago GSB, University of Copenhagen, USC, and University of Texas (Austin) for comments, and the R. G. Jenkins Family Fund, the National Science Foundation, the Caltech Laboratory for Experimental Economics and Political Science, the John Simon Guggenheim Foundation, the Social and Information Sciences Laboratory at Caltech, the UCLA Academic Senate Commitee on Research, and the Swiss Finance Institute for financial support. Opinions, findings, conclusions, and recommendations expressed in this material are those of the authors and do not necessarily reflect the views of any funding agency.
Funders:
Funding AgencyGrant Number
G. Jenkins Family FundUNSPECIFIED
NSFUNSPECIFIED
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
John Simon Guggenheim FoundationUNSPECIFIED
Caltech Social and Information Sciences LaboratoryUNSPECIFIED
UCLA Academic Senate Commitee on ResearchUNSPECIFIED
Swiss Finance InstituteUNSPECIFIED
Subject Keywords:Experimental finance, experimental asset markets, risk aversion
Issue or Number:4
Record Number:CaltechAUTHORS:BOSe07
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:BOSe07
Alternative URL:http://dx.doi.org/10.1111/j.1468-0262.2007.00780.x
Official Citation:Bossaerts, P., Plott, C. and Zame, W. R. (2007), Prices and Portfolio Choices in Financial Markets: Theory, Econometrics, Experiments. Econometrica, 75: 993–1038. doi: 10.1111/j.1468-0262.2007.00780.x
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:8649
Collection:CaltechAUTHORS
Deposited By: Archive Administrator
Deposited On:02 Sep 2007
Last Modified:02 Oct 2019 23:53

Repository Staff Only: item control page