A research paper on bond markets by CEFER and VU researcher Matthias Weber has been accepted for publication in the peer-reviewed Journal of Finance. Note that this is the best journal worldwide for research in finance with an impact factor of 6.043. It is thus a historic event when the researcher affiliated with Lithuanian institutions publishes in the globally ultimate outlet for academic finance, thus placing us in line with the most prestigious universities and world leading research institutions. The article is written jointly with John Duffy and Arthur Schram. A first version has appeared as Bank of Lithuania Working Paper last summer (BoL WP 30/2016).
Title: "An Experimental Study of Bond Market Pricing" (link to paper)
Journal: Journal of Finance (Impact factor – 6.043).
Abstract: An important feature of bond markets is the relationship between the IPO price and the probability that the issuer defaults. On the one hand, the default probability affects the IPO price. On the other hand, IPO prices affect the default probability. It is a priori unclear whether agents can competitively price such assets and our paper is the first to explore this question. We do so using laboratory experiments. We develop two flexible bond market models that are easily implemented in the laboratory. We find that subjects learn to price the bonds well after only a few repetitions.