Do ambiguity effects survive in experimental asset markets?

Sascha Füllbrunn (), Holger Rau () and Utz Weitzel

MPRA Paper from University Library of Munich, Germany

Abstract: Despite ample evidence of ambiguity preferences in individual decision making, experimental studies of ambiguity effects in financial markets are scarce and inconclusive. Although a number of theoretical studies explain empirical puzzles in finance with ambiguity preferences, it is not a given that individual ambiguity effects survive in markets. We therefore combine the predominant design for ambiguous prospects in individual decision making, the two-color Ellsberg urn, with predominant designs in financial trading, the double auction and the call market, and compare trading in risky and in ambiguous assets. Our results suggest that markets are able to wash out ambiguity effects, which we do observe in an individual decision making control. We find no effects on transaction prices or quotes and also no effects on volume, volatility, or portfolios. This applies both to double auctions and call markets, with and without simultaneous trading of risky and ambiguous assets, and even in the absence of arbitrage.

Keywords: ambiguity; experiment; trading; double auction; call market (search for similar items in EconPapers)
JEL-codes: D03 G02 G12 G14 (search for similar items in EconPapers)
Date: 2013-02-28
New Economics Papers: this item is included in nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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