News And Expectations In Financial Markets: An Experimental Study
We consider an experimental setting where traders in stock markets or exchange rate markets receive one stylized piece of information at a time about the value of an asset. We find that having limited knowledge about the prior distribution of true asset values does not hamper the decision making by traders and markets. There is empirical support for the common modeling assumption of simplifying agent heterogeneity into two types, a rational one and a less rational one. A correspondence exists between the average degree of belief conservatism found with individual buying and selling prices and that observed with market prices.
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- Mankiw, N Gregory, 2001.
"The Inexorable and Mysterious Tradeoff between Inflation and Unemployment,"
Royal Economic Society, vol. 111(471), pages 45-61, May.
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- Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
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- Evans, Dorla A, 1997. "The Role of Markets in Reducing Expected Utility Violations," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 622-636, June.
- Gordon Menzies & Daniel Zizzo, 2007. "Exchange Rate Markets And Conservative Inferential Expectations," CAMA Working Papers 2007-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University. Full references (including those not matched with items on IDEAS)
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