Reaction to public information in asset markets: does ambiguity matter?
AbstractWe report experiments that examine trader reaction to ambiguity when dividend information is revealed sequentially. We find that experienced traders are better at internalizing ambiguity than inexperienced subjects. No significant differences are observed in the ambiguity versus control treatments regarding prices, price volatility and volumes for experienced subjects. However, relative to the control, prices are higher, volatility greater and trading unsophisticated for inexperienced subjects in the ambiguity treatment. Price changes are consistent with news revelation regardless of subject experience and the degree of ambiguity. Further, we do not find under or over price reactions to news. Regardless of experience, market reaction to news moves in line with fundamentals.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number ws1025.
Date of creation: Oct 2010
Date of revision:
Experimental asset markets; Ambiguity; Market communications; Bounded rationality;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-EXP-2010-10-23 (Experimental Economics)
- NEP-MST-2010-10-23 (Market Microstructure)
- NEP-UPT-2010-10-23 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kip Smith & John Dickhaut & Kevin McCabe & José V. Pardo, 2002. "Neuronal Substrates for Choice Under Ambiguity, Risk, Gains, and Losses," Management Science, INFORMS, INFORMS, vol. 48(6), pages 711-718, June.
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