Let’s Chat… When Communication Promotes Efficiency in Experimental Asset Markets

Brice Corgnet (), Mark DeSantis () and David Porter
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Brice Corgnet: EMLYON Business School, GATE UMR 5824, F-69130 Ecully, France
Mark DeSantis: Argyros School of Business and Economics and Economic Science Institute, Chapman University, Orange, California 92866

Management Science, 2024, vol. 70, issue 10, 6550-6568

Abstract: The growing prevalence of stock market chat rooms and social media suggests that communication between traders may affect market outcomes. Using data from a series of laboratory experiments, we study the causal effect of trader communication on market efficiency. We show that communication allows markets to convey private information more effectively. This effect is robust to a wide range of information settings. The presence of insiders limits the impact, whereas posted reputation scores in the communication platform magnify it. These findings illustrate the need to consider social interactions when designing market institutions to leverage the social motives that foster information aggregation.

Keywords: information aggregation; market efficiency; communication; experimental asset markets; social market design (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:10:p:6550-6568

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