Document Type
Article
Publication Date
2010
Abstract
Gradual information diffusion model predicts that as private information travels across the population, pricing accuracy would improve and asset prices would exhibit momentum as a result. In laboratory markets I investigate the market’s aggregation capacity in response to varying proportions of informed traders as a consequence of information diffusion. The results demonstrate that pricing errors are high when private information is dispersed and that, as the information spreads, the market gradually revise the errors and manifest momentum. Analysis suggests that aggregation under dispersed information conditions is hampered by three factors: equilibrium multiplicity, slow arrival of myopic traders, and anonymous trading.
Recommended Citation
Lin, S. (2010). Gradual information diffusion and asset price momentum. ESI Working Paper 10-03. Retrieved from http://digitalcommons.chapman.edu/esi_working_papers/128
Comments
Working Paper 10-03