News and Expectations in Financial Markets: An Experimental Study

38 Pages Posted: 19 Oct 2008

See all articles by Gordon Douglas Menzies

Gordon Douglas Menzies

University of Technology Sydney (UTS) - School of Finance and Economics

Daniel John Zizzo

University of Queensland - School of Economics

Date Written: October 2008

Abstract

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

Menzies, Gordon Douglas and Zizzo, Daniel John, News and Expectations in Financial Markets: An Experimental Study (October 2008). Available at SSRN: https://ssrn.com/abstract=1286467 or http://dx.doi.org/10.2139/ssrn.1286467

Gordon Douglas Menzies

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia

Daniel John Zizzo (Contact Author)

University of Queensland - School of Economics ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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