Financial Engineering Practitioners Seminar: Noah Smith
Date: September 29, 2014 from 6:00 pm to 7:30 pm EDT
Location: Davis Auditorium, CEPSR Building
Contact: For further information regarding this event, please contact IEOR Department by sending email to .
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Title: Are Experimental Asset Markets Arbitrage-Free?

Abstract: Much of the experimental finance literature seeks to test the conditions under which asset bubbles occur in the laboratory. But if these experiments are to give us information about real-world markets, they should resemble real-world markets in some basic ways. We create an experimental asset market with a complete set of (two) state-contingent assets, whose setup is similar to the type normally employed in "bubble experiments," and compare the order book prices and realized transaction prices to similar real-world markets. We find that although opportunities for true arbitrage are rare, transaction prices differ persistently from no-arbitrage prices. This raises doubts as to whether experimental markets of this type are sufficiently liquid to serve as good proxies for real-world markets.

Bio: Noah Smith is an assistant professor of finance in the College of Business at Stony Brook University. He received his PhD in economics from the University of Michigan. Sophia Dong is a doctoral candidate in applied mathematics at Stony Brook University.

Presentation Slides