The purpose of this paper is to develop and implement structural econometric tests of general equilibrium asset pricing theory on data from large-scale experimental financial markets. These tests differ from standard tests on field data in two significant ways. First, the tests use cross-sectional portfolio holdings data, and therefore, verify the consistency between securities prices and allocations. In field studies, one generally only verifies whether prices (price dynamics) satisfy some necessary conditions for equilibrium. Second, unlike tests on field data, the joint distribution of asset returns is not treated as unknown, because it is one of the design parameters, and hence, known to the experimentor. This also implies that the sampling error in the estimation of the joint distribution of asset returns cannot be the source of the uncertainty on which the structural econometric tests are built.

Econometric tests of asset pricing theory on field data almost invariably focus on prices, ignoring the allocational predictions of the same theory. Tests of the Capital Asset Pricing Model (CAPM), for instance, have merely verified whether prices are such that the market portfolio (supply of risky securities) is mean-variance optimal. The allocational prediction of the CAPM, namely, that all investors should hold the same portfolio of risky securities (a result which has been referred to as portfolio separation), is rarely if ever verified. Yet economists are not directly interested in prices. They are mostly interested in allocations, and whether competitive markets manage to indeed generate optimal allocations (the first welfare theorem).