Is more information always better? Experimental financial markets with asymmetric information

Jürgen Huber, Matthias Sutter () and Michael Kirchler

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: We study the value of information in financial markets by asking whether having more information always leads to higher returns. We address this question in an experiment where single traders have different information levels about an asset's intrinsic value. In our treatments we vary the nature of the information and the trading mechanism. We find that only the very best informed traders (i.e. insiders) significantly outperform less informed traders. However, there is a wide range of information levels (from zero information to an average information level) where additional information does not yield higher returns. The latter result implies that the value of information is not strictly monotonic.

Keywords: Asymmetric information; Experimental economics; Value of information (search for similar items in EconPapers)
JEL-codes: C91 D82 D83 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-fin
Date: 2004-12
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