Dynamic CAPM under ambiguity-An experimental approach

We develop an experimental financial market using real data in which subjects trade two assets for 30 periods in an ambiguous environment. The main goal is to verify if CAPM holds when subjects have homogenous knowledge about future payoffs given current ambiguous market conditions. We find that (i) CAPM holds in a dynamic market setting when exogenous information on the issuing companies' states changes over time and when economic conditions are experiencing steady growth, (ii) subjects are mostly influenced by indebtedness and profitability fundamentals, (iii) the number of years of study in financial markets and stress positively influenced their final payoff, (iv) statistically, women obtained lower returns and (v) overconfidence negatively influenced individual payoffs. One novelty of the study consists in the use of real fundamental and macroeconomic variables as exogenous information for participants in generating the price processes, thus simulating an experimental financial market.