We implement a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In the first treatment, we impose diminishing marginal returns to cash to incentivize consumption smoothing across periods. We find that subjects use the asset to smooth consumption, although the asset trades at a discount relative to the risk-neutral fundamental price. This under-pricing is a departure from the asset price “bubbles” observed in the large experimental asset pricing literature originating with Smith et al. (1988) and can be rationalized by considering subjects’ risk aversion with respect to uncertain money earnings. In a second treatment, with no induced motivation for trade à la the Smith et al. design, we find that the asset trades at a premium relative to its expected value and that shareholdings are highly concentrated. Elimination of asset price uncertainty in additional experimental treatments serves to reinforce the same observations, and suggests that speculative behaviour explains the departure of prices from fundamental value in the absence of a consumption-smoothing motive for asset trades.

The role of underwriters is altered in new seasoned equity offering deal types in which the offering follows quickly after its announcement. Controlling for the endogenous matching between issuing firms and underwriters, we find increased underwriter reputation mitigates the immediate price impact of announcing an accelerated bookbuilt offering, exacerbates the price impact of announcing a bought offering, and has no immediate price impact for fully marketed deals. In contrast, underwriter reputation positively affects price outcomes for fully marketed deals around the offer date. Reputation effects are not apparent in the absence of controlling for the endogenous matching.