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Overweighting of public information in financial markets: A lesson from the lab

Alba Ruiz-Buforn, Eva Camacho-Cuena, Andrea Morone () and Simone Alfarano ()
Authors registered in the RePEc Author Service: Eva Camacho Cuena ()

MPRA Paper from University Library of Munich, Germany

Abstract: We experimentally study the information aggregation process in a laboratory financial market when a public signal is released. The public disclosure crowds out information demand and reduces price informativeness. The latter effect is primarily caused by the overweighting of public information into prices. We are the first in providing evidence that strategic pricing concerns trigger the overweighting effect and the consequent market overreaction to public disclosures. From an economic policy perspective, we give support that, when deciding their communication strategy, the regulator can mitigate the market overreaction by properly setting the level of information transparency.

Keywords: Experimental asset markets; public information; information acquisition; asymmetric information (search for similar items in EconPapers)
JEL-codes: C92 D82 G14 (search for similar items in EconPapers)
Date: 2020-01-22
New Economics Papers: this item is included in nep-cfn and nep-exp
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