News and Expectations in Financial Markets: An Experimental Study
38 Pages Posted: 19 Oct 2008
Date Written: October 2008
We consider an experimental setting where traders in stock markets or exchange rate markets receive one stylized piece of information at a time about the value of an asset. We find that having limited knowledge about the prior distribution of true asset values does not hamper the decision making by traders and markets. There is empirical support for the common modeling assumption of simplifying agent heterogeneity into two types, a rational one and a less rational one. A correspondence exists between the average degree of belief conservatism found with individual buying and selling prices and that observed with market prices.
Keywords: uncertainty, expectations, information, stock market, exchange rate market
JEL Classification: C91, D83, D84, F31, G12
Suggested Citation: Suggested Citation