Risk Attitude, Beliefs Updating and the Information Content of Trades: An Experiment

Christophe Bisière, Jean-Paul Décamps and Stefano Lovo

No 09-036, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We conduct a series of experiments that simulate trading in financial markets and which allows us to identify the different effects that subjects’ risk attitudes and belief updating rules have on the information content of the order flow. We find that there are very few risk-neutral subjects and that subjects displaying risk aversion or risk-loving tend to ignore private information when their prior beliefs on the asset fundamentals are strong. Consequently, private information struggles penetrating trading prices. We find evidence of non-Bayesian belief updating (confirmation bias and under-confidence). This reduces (improves) market efficiency when subjects’ prior beliefs are weak (strong).

JEL-codes: D82 G14 (search for similar items in EconPapers)
Date: 2009-05, Revised 2012-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://idei.fr/sites/default/files/medias/doc/by/bisiere/risk_attitude_2012.pdf Full text (application/pdf)

Related works:
Journal Article: Risk Attitude, Beliefs Updating, and the Information Content of Trades: An Experiment (2015)
Working Paper: Risk Attitude, Beliefs Updating, and the Information Content of Trades: An Experiment (2015)
Working Paper: Risk Attitude, Beliefs Updating and the Information Content of Trades: An Experiment (2012)
Working Paper: Risk attitude, beliefs updating and the information content of trades: an experiment (2009)
Working Paper: Risk attitude, beliefs updating and the information content of trades: an experiment (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:21946

Access Statistics for this paper

More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC.
Bibliographic data for series maintained by ().