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The Effect of Reliability, Content and Timing of Public Announcements on Asset Trading Behavior

  • Brice Corgnet

    (Business Department, Universidad de Navarra)

  • Praveen Kujal

    (Department of Economics, Universidad Carlos III de Madrid)

  • David Porter

    ()

    (Economic Science Institute, Chapman University)

Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messages can play a significant role in bubble abatement, or rekindling. The preset message, “The price is too high,” decreases the amplitude and duration of bubbles for inexperienced subjects. Announcements that depend on the actual level of mispricing reduce bubble magnitude. Meanwhile, a preset or random message, “The price is too low,” prevents experienced subjects from abating bubbles. We account for the effect of public messages by showing that they significantly reduce inconsistent (“irrational”) trading behavior.

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File URL: http://www.chapman.edu/ESI/wp/Porter-PublicAnnouncements.pdf
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Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 11-02.

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Length: 33 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:chu:wpaper:11-02
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