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  • School of Business, Economics and Law / Handelshögskolan
  • Department of Economics / Institutionen för nationalekonomi med statistik
  • Working papers
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Do Option-like Incentives Induce Overvaluation? Evidence from Experimental Asset Markets

Sammanfattning
One potential reason for bubbles evolving prior to the financial crisis was excessive risk taking stemming from option-like incentive schemes in financial institutions. By running laboratory asset markets, we investigate the impact of option-like incentives on price formation and trading behavior. We observe (i) that option-like incentives induce significantly higher market prices than linear incentives. We further find that (ii) option-like incentives provoke subjects to behave differently and to take more risk than subjects with linear incentives. We finally show that (iii) trading at inflated prices is rational for subjects with option-like incentives since it increases their expected payout.
URL:
http://hdl.handle.net/2077/30294
Samlingar
  • Working papers
Fil(er)
gupea_2077_30294_4.pdf (1.329Mb)
Datum
2012-11 (r
Författare
Holmén, Martin
Kirchler, Michael
Kleinlercher, Daniel
Nyckelord
mispricing
incentives
market efficiency
experimental finance
Publikationstyp
report
ISSN
1403-2465
Serie/rapportnr.
Working Papers in Economics
540 (revised)
Språk
eng
Metadata
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