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Reaction to Public Information in Markets: How Much Does Ambiguity Matter?

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Author Info

  • Brice Corgnet

    (Business Department, Universidad de Navarra)

  • Praveen Kujal

    (Department of Economics, Universidad Carlos III de Madrid)

  • David Porter

    ()
    (Economic Science Institute, Chapman University)

Abstract

In real world situations the fundamental value of an asset is ambiguous. Recent theory has incorporated ambiguity in the dividend process and the information observed by investors, and studied its effect on asset prices. In this paper we experimentally study trader reaction to ambiguity when dividend information is revealed sequentially. Price changes are consistent with news revelation regarding the dividend regardless of subject experience and the degree of ambiguity. Further, there is no under or over price reactions to news. Regardless of experience, market reaction to news moves in line with fundamentals. Also, no significant differences are observed in the control versus ambiguity treatments regarding prices, price volatility and volumes for experienced subjects. Our results indicate that the role of ambiguity aversion in explaining financial anomalies is limited.

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File URL: http://www.chapman.edu/ESI/wp/Porter-GoodNewsBadNews.pdf
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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 11-01.

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Length: 54 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:chu:wpaper:11-01

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Related research

Keywords: Ambiguity; Dividend Revelation; Price Changes; Reaction to News; Experience;

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References

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  1. Kip Smith & John Dickhaut & Kevin McCabe & José V. Pardo, 2002. "Neuronal Substrates for Choice Under Ambiguity, Risk, Gains, and Losses," Management Science, INFORMS, vol. 48(6), pages 711-718, June.
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Cited by:
  1. Steven Tucker & Charles Noussair & Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, 07.

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