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Reaction to public information in asset markets: does ambiguity matter?

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

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We report experiments that examine trader reaction to ambiguity when dividend information is revealed sequentially. We find that experienced traders are better at internalizing ambiguity than inexperienced subjects. No significant differences are observed in the ambiguity versus control treatments regarding prices, price volatility and volumes for experienced subjects. However, relative to the control, prices are higher, volatility greater and trading unsophisticated for inexperienced subjects in the ambiguity treatment. Price changes are consistent with news revelation regardless of subject experience and the degree of ambiguity. Further, we do not find under or over price reactions to news. Regardless of experience, market reaction to news moves in line with fundamentals.

Keywords: Ambiguity; Experimental; asset; markets; Market; communications; Bounded; rationality (search for similar items in EconPapers)
JEL-codes: C92 G12 (search for similar items in EconPapers)
Date: 2010-10
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we1025

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