Reaction to Public Information in Markets: How Much Does Ambiguity Matter?
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.
|Date of creation:||2011|
|Contact details of provider:|| Postal: One University Drive, Orange, CA 92866|
Phone: (714) 628-2830
Fax: (714) 628-2881
Web page: http://www.chapman.edu/esi/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.