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Market timing under public and private information

Author

Listed:
  • Jean Paul Rabanal

    (Monash University)

  • Aleksei Chernulich

    (NYU Abu Dhabi)

  • John Horowitz

    (Ball State University)

  • Olga A. Rud

    (RMIT University)

  • Manizha Sharifova

    (University of the Pacific)

Abstract

We design an experiment where subjects must choose between a risky investment, which evolves according to an autoregressive process, and a risk-free investment which has a constant payoff. The treatments vary the information available on the risky investment when players choose the risk-free alternative. We find that in the public information treatment, which captures the information structure of index funds, subjects stay out of the market longer compared to the private information environment, which captures elements of private equity investment. The difference in behavior across treatments can be explained by the demand for information, which appears to overcome risk aversion.

Suggested Citation

  • Jean Paul Rabanal & Aleksei Chernulich & John Horowitz & Olga A. Rud & Manizha Sharifova, 2019. "Market timing under public and private information," Working Papers 151, Peruvian Economic Association.
  • Handle: RePEc:apc:wpaper:151
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    More about this item

    Keywords

    Forecasting experiment; investment decisions; market timing; discrete choice;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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