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The Effect of Reliability, Content and Timing of Public Announcements on Asset Trading Behavior

Brice Corgnet (), Praveen Kujal () and David Porter

Working Papers from Chapman University, Economic Science Institute

Abstract: Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messages can play a significant role in bubble abatement, or rekindling. The preset message, “The price is too high,” decreases the amplitude and duration of bubbles for inexperienced subjects. Announcements that depend on the actual level of mispricing reduce bubble magnitude. Meanwhile, a preset or random message, “The price is too low,” prevents experienced subjects from abating bubbles. We account for the effect of public messages by showing that they significantly reduce inconsistent (“irrational”) trading behavior.

Keywords: experimental asset markets; bubbles; market communications; bounded rationality (search for similar items in EconPapers)
JEL-codes: C92 G12 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2011
New Economics Papers: this item is included in nep-exp
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http://www.chapman.edu/ESI/wp/Porter-PublicAnnouncements.pdf (application/pdf)

Related works:
Journal Article: The effect of reliability, content and timing of public announcements on asset trading behavior (2010) Downloads
Working Paper: The effect of reliability, content and timing of public announcements on asset trading behavior (2010) Downloads
Working Paper: The effect of reliability, content and timing of public announcements on asset trading behavior (2010)
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