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Information Acquisition in Ostensibly Efficient Markets

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  • Alasdair Brown

    (University of East Anglia)

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    Abstract

    I 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 Info

    Paper 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.

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    Date of creation: Apr 2013
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    Handle: RePEc:uea:aepppr:2012_43

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    14. repec:reg:rpubli:259 is not listed on IDEAS
    15. Roman Kozhan & Wing Wah Tham, 2012. "Execution Risk in High-Frequency Arbitrage," Management Science, INFORMS, vol. 58(11), pages 2131-2149, November.
    16. Stefano Dellavigna & Joshua M. Pollet, 2009. "Investor Inattention and Friday Earnings Announcements," Journal of Finance, American Finance Association, vol. 64(2), pages 709-749, 04.
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