Information Acquisition in Ostensibly Efficient Markets
AbstractI use U.K. betting exchange data on Wimbledon tennis matches to investigate the Grossman and Stiglitz (1980) paradox. Risk-free arbitrage opportunities arise frequently during matches (as information arrives and asynchronously shifts prices), but seldom arise before matches (when there is little information to move prices). I find that on the few occasions that arbitrage opportunities do arise before matches, they last substantially longer than average. This suggests, in line with the paradox, that traders neglect to acquire information (i.e. carry out research, or watch markets) if they believe that markets are already efficient. This neglect, in turn, makes markets inefficient.
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Bibliographic InfoPaper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Applied and Financial Economics Working Paper Series with number 043.
Date of creation: Apr 2013
Date of revision:
Postal: Helen Chapman, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-CTA-2013-04-27 (Contract Theory & Applications)
- NEP-MST-2013-04-27 (Market Microstructure)
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