The effect of reliability, content and timing of public announcements on asset trading behavior
AbstractFinancial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messages can play a significant role in bubble abatement, or rekindling. The preset message, “The price is too high,” decreases the amplitude and duration of bubbles for inexperienced subjects. Announcements that depend on the actual level of mispricing reduce bubble magnitude. Meanwhile, a preset or random message, “The price is too low,” prevents experienced subjects from abating bubbles. We account for the effect of public messages by showing that they significantly reduce inconsistent (“irrational”) trading behavior.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we101204.
Date of creation: Mar 2010
Date of revision:
Experimental asset markets; Bubbles; Market communications; Bounded rationality;
Other versions of this item:
- Corgnet, Brice & Kujal, Praveen & Porter, David, 2010. "The effect of reliability, content and timing of public announcements on asset trading behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 254-266, November.
- Brice Corgnet & Praveen Kujal & David Porter, 2011. "The Effect of Reliability, Content and Timing of Public Announcements on Asset Trading Behavior," Working Papers 11-02, Chapman University, Economic Science Institute.
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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