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Costly Information Acquisition, Social Networks and Asset Prices: Experimental Evidence

Listed author(s):
  • Halim, Edward
  • Riyanto, Yohanes Eko
  • Roy, Nilanjan

We design an experiment to study the implications of information networks for the incentive to acquire costly information, market liquidity, investors' earnings and asset price characteristics in a financial market. Social communication crowds out information production as a result of agent's temptation to free ride on the signals purchased by their neighbors. Although information exchange among traders increases trading volume, improves liquidity and enhances the ability of asset prices to reflect the aggregate amount of information in the market, it fails to improve price accuracy. Net earnings are higher with information sharing due to reduced acquisition of costly signals.

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File URL: https://mpra.ub.uni-muenchen.de/80658/1/MPRA_paper_80658.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 80658.

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Date of creation: 07 Aug 2017
Handle: RePEc:pra:mprapa:80658
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