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Reaction to Public Information in Markets: How Much Does Ambiguity Matter?

Author

Listed:
  • Brice Corgnet

    (Business Department, Universidad de Navarra)

  • Praveen Kujal

    (Department of Economics, Universidad Carlos III de Madrid)

  • David Porter

    (Economic Science Institute, Chapman University)

Abstract

In real world situations the fundamental value of an asset is ambiguous. Recent theory has incorporated ambiguity in the dividend process and the information observed by investors, and studied its effect on asset prices. In this paper we experimentally study trader reaction to ambiguity when dividend information is revealed sequentially. Price changes are consistent with news revelation regarding the dividend regardless of subject experience and the degree of ambiguity. Further, there is no under or over price reactions to news. Regardless of experience, market reaction to news moves in line with fundamentals. Also, no significant differences are observed in the control versus ambiguity treatments regarding prices, price volatility and volumes for experienced subjects. Our results indicate that the role of ambiguity aversion in explaining financial anomalies is limited.

Suggested Citation

  • Brice Corgnet & Praveen Kujal & David Porter, 2011. "Reaction to Public Information in Markets: How Much Does Ambiguity Matter?," Working Papers 11-01, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:11-01
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    File URL: http://www.chapman.edu/ESI/wp/Porter-GoodNewsBadNews.pdf
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    References listed on IDEAS

    as
    1. 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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    Citations

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    Cited by:

    1. Jeleva, Meglena & Tallon, Jean-Marc, 2016. "Ambiguïté, comportements et marchés financiers," L'Actualité Economique, Société Canadienne de Science Economique, vol. 92(1-2), pages 351-383, Mars-Juin.
    2. John Griffin, 2015. "Risk Premia and Knightian Uncertainty in an Experimental Market Featuring a Long-Lived Asset," Fordham Economics Discussion Paper Series dp2015-01er:dp2015-01, Fordham University, Department of Economics.
    3. Corgnet, Brice & Hernán-González, Roberto & Kujal, Praveen, 2020. "On booms that never bust: Ambiguity in experimental asset markets with bubbles," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    4. Christoph Huber & Julia Rose, 2019. "Do individual attitudes towards imprecision survive in experimental asset markets?," Working Papers 2019-06, Faculty of Economics and Statistics, Universität Innsbruck.
    5. Konstantinos Georgalos, 2019. "An experimental test of the predictive power of dynamic ambiguity models," Journal of Risk and Uncertainty, Springer, vol. 59(1), pages 51-83, August.
    6. Kangogo, Moses & Volkov, Vladimir, 2022. "Detecting signed spillovers in global financial markets: A Markov-switching approach," International Review of Financial Analysis, Elsevier, vol. 82(C).
    7. Kathleen Ngangoué, M., 2021. "Learning under ambiguity: An experiment in gradual information processing," Journal of Economic Theory, Elsevier, vol. 195(C).
    8. Konstantinos Georgalos, 2016. "Dynamic decision making under ambiguity," Working Papers 112111041, Lancaster University Management School, Economics Department.
    9. Füllbrunn, Sascha & Rau, Holger A. & Weitzel, Utz, 2014. "Does ambiguity aversion survive in experimental asset markets?," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 810-826.
    10. Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, July.
    11. Othon M. Moreno & Yaroslav Rosokha, 2016. "Learning under compound risk vs. learning under ambiguity – an experiment," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 137-162, December.
    12. Jaeyong An & P. R. Kumar & Le Xie, 2016. "Dynamic Modeling of Price Responsive Demand in Real-time Electricity Market: Empirical Analysis," Papers 1612.05021, arXiv.org.
    13. Bousselmi, Wael & Sentis, Patrick & Willinger, Marc, 2019. "How do markets react to (un)expected fundamental value shocks? An experimental analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 90-113.
    14. Praveen Kujal & Owen Powell, 2017. "Bubbles in Experimental Asset Markets," Working Papers 17-01, Chapman University, Economic Science Institute.
    15. John Griffin, 2015. "Risk Premia and Knightian Uncertainty in an Experimental Market Featuring a Long-Lived Asset," Fordham Economics Discussion Paper Series dp2015-01, Fordham University, Department of Economics.

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    More about this item

    Keywords

    Ambiguity; Dividend Revelation; Price Changes; Reaction to News; Experience;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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