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Experimental finance has made great strides in understanding how market participants price assets in a variety of different settings (see Sunder, 1995; Palan, 2013; Powell and Shestakova, 2016 and Nuzzo and Morone, 2017 for early, as well as more recent surveys). The experimental approach allowed researchers to reduce confounding factors that are present in complex financial markets by controlling environmental factors such as the information available to traders (Bloomfield and Anderson, 2010), or the fundamental value of assets traded, to cleanly isolate the variables of interest.
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In this chapter, we review the small but growing experimental literature on trade in multiple assets as well as trade in more complex financial instruments, such as derivatives and indices, the value of which is derived from underlying assets. Experiments that include multiple assets, where at least two or more assets are sufficiently similar, allow us to study whether the no arbitrage condition holds. This condition is an important assumption for formulating predictions under concepts such as interest rate parity, and the law of one price, or for trade with more complex financial instruments such as exchange-traded funds (ETFs). Furthermore, environments with multiple assets expand the range of topics that can be studied, including asset risk premia, price co-movement between assets, and the impact of derivatives and/or indices on the prices of underlying assets
From:
John Duffy
Jean Paul Rabanal
Olga A. Rud
Experimental finance has made great strides in understanding how market participants price assets in a variety of different settings (see Sunder, 1995; Palan, 2013; Powell and Shestakova, 2016 and Nuzzo and Morone, 2017 for early, as well as more recent surveys). The experimental approach allowed researchers to reduce confounding factors that are present in complex financial markets by controlling environmental factors such as the information available to traders (Bloomfield and Anderson, 2010), or the fundamental value of assets traded, to cleanly isolate the variables of interest.
.....
In this chapter, we review the small but growing experimental literature on trade in multiple assets as well as trade in more complex financial instruments, such as derivatives and indices, the value of which is derived from underlying assets. Experiments that include multiple assets, where at least two or more assets are sufficiently similar, allow us to study whether the no arbitrage condition holds. This condition is an important assumption for formulating predictions under concepts such as interest rate parity, and the law of one price, or for trade with more complex financial instruments such as exchange-traded funds (ETFs). Furthermore, environments with multiple assets expand the range of topics that can be studied, including asset risk premia, price co-movement between assets, and the impact of derivatives and/or indices on the prices of underlying assets
From:
John Duffy
Jean Paul Rabanal
Olga A. Rud