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It is hard to beat the Monkeys - On the Value of Asymmetric Fundamental Information in Asset Markets

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  • Michael Kirchler

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    Abstract

    In this paper we present results from experimental asset markets and simulations with traders who receive asymmetric information about the fundamental value of an asset. In the experimental markets with repetition insiders outperform the market and uninformed computerized random traders (monkeys) perform equally well compared to average informed traders. This is in line with the results of the equilibrium simulation output in which traders choose between a random strategy and their fundamental strategy. We further find that pattern of average informed not being able to beat the uninformed is not due to their overconfidence but due to the asymmetric information structure of the market.

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    File URL: http://eeecon.uibk.ac.at/wopec2/repec/inn/wpaper/2008-19.pdf
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    Bibliographic Info

    Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2008-19.

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    Length: 46
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:inn:wpaper:2008-19

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    Postal: Universit├Ątsstra├če 15, A - 6020 Innsbruck
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    Fax: 0512/507-2788
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    Web page: http://www.uibk.ac.at/fakultaeten/volkswirtschaft_und_statistik/index.html.en
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    Related research

    Keywords: Information economics; experimental economics; agent-based model; overconfidence; value of information;

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    1. Martin Dufwenberg & Tobias Lindqvist & Evan Moore, 2005. "Bubbles and Experience: An Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1731-1737, December.
    2. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
    3. Plott, Charles R & Sunder, Shyam, 1982. "Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 663-98, August.
    4. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-51, September.
    5. Huber, Jurgen & Kirchler, Michael & Sutter, Matthias, 2008. "Is more information always better: Experimental financial markets with cumulative information," Journal of Economic Behavior & Organization, Elsevier, vol. 65(1), pages 86-104, January.
    6. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04.
    7. Reshmaan N. Hussam & David Porter & Vernon L. Smith, 2008. "Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?," American Economic Review, American Economic Association, vol. 98(3), pages 924-37, June.
    8. Seyhun, H. Nejat, 1986. "Insiders' profits, costs of trading, and market efficiency," Journal of Financial Economics, Elsevier, vol. 16(2), pages 189-212, June.
    9. Huber, Jurgen, 2007. "`J'-shaped returns to timing advantage in access to information - Experimental evidence and a tentative explanation," Journal of Economic Dynamics and Control, Elsevier, vol. 31(8), pages 2536-2572, August.
    10. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
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