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Immediate disclosure or secrecy? the release of information in experimental asset markets

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  • Lucy F. Ackert
  • Bryan K. Church
  • Ann B. Gillette

Abstract

The Federal Reserve has made significant changes in its predisposition to release information over time. This paper reports the results of experimental asset markets designed to investigate how the public disclosure of uncertain information affects market and individual outcomes. In one set of markets, no information is released at the beginning of each trading year. In two other sets, an imperfect pre-announcement of the state of nature is disclosed. The reliability of the pre-announcement (60 percent and 90 percent) varies across treatments. Halfway through each trading year, the state of nature is revealed. By year-end, price deviations from Bayesian predictions are similar across all treatments; however, price volatility is significantly higher and allocational efficiency significantly lower with a pre-announcement that reflects substantial uncertainty. Furthermore, when the reliability of the pre-announcement is low (60 percent), the distribution in profit across traders is significantly greater even though the average profit is similar across treatments. Thus, in a highly uncertain environment better outcomes may actually result when information is withheld.

Suggested Citation

  • Lucy F. Ackert & Bryan K. Church & Ann B. Gillette, 2001. "Immediate disclosure or secrecy? the release of information in experimental asset markets," FRB Atlanta Working Paper 2001-5, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2001-5
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    References listed on IDEAS

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    1. Plott, Charles R & Sunder, Shyam, 1982. "Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 663-698, August.
    2. Ireland, Peter N, 2000. "Interest Rates, Inflation, and Federal Reserve Policy since 1980," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 417-434, August.
    3. Ann B. Gillette & Douglas E. Stevens & Susan G. Watts & Arlington W. Williams, 1999. "Price and Volume Reactions to Public Information Releases: An Experimental Approach Incorporating Traders' Subjective Beliefs," Contemporary Accounting Research, John Wiley & Sons, vol. 16(3), pages 437-479, September.
    4. Ackert, Lucy F. & Church, Bryan K., 1998. "Information dissemination and the distribution of wealth: Evidence from experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 357-371, November.
    5. Copeland, Thomas E & Friedman, Daniel, 1987. "The Effect of Sequential Information Arrival on Asset Prices: An Experimental Study," Journal of Finance, American Finance Association, vol. 42(3), pages 763-797, July.
    6. Ackert, Lucy F. & Church, Bryan K. & Shehata, Mohamed, 1997. "Market behavior in the presence of costly, imperfect information: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 61-74, May.
    7. Cason, Timothy N. & Friedman, Daniel, 1996. "Price formation in double auction markets," Journal of Economic Dynamics and Control, Elsevier, vol. 20(8), pages 1307-1337, August.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Monetary policy; Monetary policy - United States; Financial markets;
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