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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Experimental asset markets; Ambiguity; Market communications; Bounded rationality;
Other versions of this item:
- Brice Corgnet & Praveen Kujal & David Porter, 2010. "Reaction to public information in asset markets: does ambiguity matter?," Economics Working Papers ws1025, Universidad Carlos III, Departamento de Economía.
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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- 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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