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How much information is incorporated in financial asset prices? Experimental Evidence

Lionel Page () and Christoph Siemroth

No 54, QuBE Working Papers from QUT Business School

Abstract: We propose a new estimation method and use experimental data from multiple double auction experiments in the literature to directly estimate how much information is incorporated in financial market prices. We find that public information is almost completely reflected in prices, but that surprisingly little private information—less than 50%—is incorporated in prices. Our estimates therefore suggest that while semi-strong informational efficiency is consistent with the data, financial market prices may be very far from strong-form efficiency. We compare our estimates with beliefs of economists surveyed at the Econometric Society Meetings, and find that economists and finance researchers alike expect market prices to reflect considerably more private information than what we estimated.

JEL-codes: C92 D82 D84 G14 (search for similar items in EconPapers)
Date: 2018-02-27
New Economics Papers: this item is included in nep-exp and nep-mst
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