Experimental Asset Markets with Endogenous Choice of Costly Heterogeneous Information

43 Pages Posted: 5 May 2009 Last revised: 1 Jun 2009

See all articles by Martin Angerer

Martin Angerer

Hochschule Liechtenstein; University of Innsbruck

Juergen Huber

University of Innsbruck; University of Vienna - Department of Finance

Michael Kirchler

University of Innsbruck

Date Written: January 25, 2009

Abstract

Building on Grossman and Stiglitz (1980) and Sunder (1992) we present results from experimental asset markets where subjects endogenously choose between five information levels. Depending on the specific treatment either the costs of information or the maximum number of subjects with each information level is fixed. We find mostly supporting evidence for the conjectures of Grossman and Stiglitz (1980) and the results of Sunder (1992). More importantly, we observe that the relationship between information level and gross returns is not linear, but J-shaped. Looking at net returns after information costs, the uninformed have the highest net returns in each treatment, while informed traders are not able to recover their information costs.

Keywords: Costly information, asset markets, experiment, value of information, heterogeneous information

JEL Classification: C91, D82, G1

Suggested Citation

Angerer, Martin and Huber, Juergen and Kirchler, Michael, Experimental Asset Markets with Endogenous Choice of Costly Heterogeneous Information (January 25, 2009). Available at SSRN: https://ssrn.com/abstract=1399359 or http://dx.doi.org/10.2139/ssrn.1399359

Martin Angerer (Contact Author)

Hochschule Liechtenstein ( email )

Fürst-Franz-Josef-Strasse
Vaduz, FL-9490
Liechtenstein

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Juergen Huber

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

University of Vienna - Department of Finance ( email )

Bruenner Strasse 72
Vienna, 1210
Austria

Michael Kirchler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

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