In each round, you can invest between 0 and 200% of current fund wealth in the stock index. If you invest more than 100% of fund wealth, then the fraction which exceeds 100% is borrowed at the risk-free rate of 2.5%. If you are investing less than 100% of your wealth in the stock index, the amount not invested in the stock index is invested at the risk-free rate of 2.5%.
At the end of each round, the actual return of the stock index is randomly determined from the distribution described in the previous page and the fund wealth will be calculated according to your investment in the stock index and the risk-free asset. Note that the stock index return is identical for all group members.
Example 1: Assume your Points are 300, and you decide to allocate a fraction of 50% to the stock index. Thus, the remaining 50% will be allocated to the risk-free asset. If the stock index provides a random return number of +10.0%, then fund wealth in the next round will be as follows:
Points from the stock index: (50% allocation * 300 Points) * 10% random number = 15 Points;
Points from the risk-free asset: (50% allocation * 300 Points) * 2.5% fixed payout = 3.75 Points;
Total Points in the subsequent round: 300 previous round’s Points + 15 + 3.75 = 318.75 Points
Example 2: Assume your Points are 300, and you decide to allocate a fraction of 150% to the stock index. Thus, the you have to pay a cost of 2.5% for the amount exceeding 100%. If the stock index provides a random return number of +10.0%, then fund wealth in the next round will be as follows:
Points from the stock index: (150% allocation * 300 Points) * 10% random number = 45 Points;
Points fee from the amount exceeding 100%-allocation: (－50% * 300 Points) * 2.5% costs = －3.75 Points;
Total Points in the subsequent round: 300 previous round’s Points + 45 － 3.75 = 341.25 Points
Please make your decision within the time limit shown on your screen. We will reject the Hits which miss more than two decisions in 20 rounds.
After all members of your group have made their decisions, the decision screen in each round will show current fund wealth, the wealth change compared to the previous round, the return of the stock index in the previous round, your invested fraction in the stock index in the previous round, the risk-free rate and your invested fraction in the risk-free asset in the previous round. This information appears for 15 seconds at the end of each round and is also displayed at the bottom of the decision screen in the next round.
Payment At the end of the experiment, all of you will be ranked from one to six in descending order by the final fund wealth. The median final fund wealth is the average final fund wealth of the rank three and rank four. If you finish the experiment in rank four to six, you will receive the 25% of the final fund wealth minus additional 50% of the fund wealth less than median final fund wealth: Your final Points = 0.25 * final fund wealth －0.5 * (median final fund wealth － final fund wealth). If you finish the experiment in rank one to three, you will receive the 25% of the final fund wealth: Your final Points = 0.25 * final fund wealth. |
I HAVE READ AND UNDERSTOOD THE INSTRUCTIONS. CONTINUE!
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