Reaction to Public Information in Markets: How much does Ambiguity Matter?
Document Type
Article
Publication Date
2013
Abstract
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.
Recommended Citation
Brice Corgnet & Praveen Kujal & David Porter, 2013. "Reaction to Public Information in Markets: How much does Ambiguity Matter?," Economic Journal, Royal Economic Society, vol. 123(569), pages 699-737, 06.
DOI:10.1111/j.1468-0297.2012.02557.x
Peer Reviewed
1
Copyright
Wiley
Comments
This article was originally published in Economic Journal, volume 123, issue 569, in 2013.
The link above is to the authoritative publisher’s version, as noted by the Economic Science Institute, and may reside behind a paywall. If denied access, Chapman students, faculty, and staff should try this link.