Is more information always better? Experimental financial markets with asymmetric information
AbstractWe study the value of information in financial markets by asking whether having more information always leads to higher returns. We address this question in an experiment where single traders have different information levels about an asset's intrinsic value. In our treatments we vary the nature of the information and the trading mechanism. We find that only the very best informed traders (i.e. insiders) significantly outperform less informed traders. However, there is a wide range of information levels (from zero information to an average information level) where additional information does not yield higher returns. The latter result implies that the value of information is not strictly monotonic.
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Bibliographic InfoPaper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2005-13.
Length: 35 pages
Date of creation: Dec 2004
Date of revision:
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-27 (All new papers)
- NEP-CBE-2005-06-27 (Cognitive & Behavioural Economics)
- NEP-FIN-2005-06-27 (Finance)
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