Dynamically Complete Experimental Asset Markets

We design an experiment to compare investors’ final wealth distribution in a static setup and an equivalent dynamic setup. In the static setup investors can trade all risks since there are as many securities as states of the world. In the dynamic market there are too few securities for investors to achieve efficient final wealth holdings without re-trade. Information disclosure and the possibility of re-trade in our experimental markets are such that markets can be completed over time via appropriate re-trade after information disclosure. Thus, investor final wealth and state security prices are predicted to be identical across the two considered setups. We find that some important differences persist across treatments, even after several iterations of the same situation. We introduce the notion of price risk aversion as a possible source of the observed differences.