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Costly Information Acquisition, Social Networks and Asset Prices: Experimental Evidence

Edward Halim, Yohanes Riyanto () and Nilanjan Roy

MPRA Paper from University Library of Munich, Germany

Abstract: We design an experiment to study the implications of information networks for the incentive to acquire costly information, market liquidity, investors' earnings and asset price characteristics in a financial market. Social communication crowds out information production as a result of agent's temptation to free ride on the signals purchased by their neighbors. Although information exchange among traders increases trading volume, improves liquidity and enhances the ability of asset prices to reflect the aggregate amount of information in the market, it fails to improve price accuracy. Net earnings are higher with information sharing due to reduced acquisition of costly signals.

Keywords: Asymmetric Information; Costly Information Acquisition; Experimental Asset Markets; Social Network; Uncertainty (search for similar items in EconPapers)
JEL-codes: C92 D84 G10 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-exp, nep-ict and nep-net
Date: 2017-08-07
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