How Much Information is Incorporated in Financial Asset Prices? Experimental Evidence
Review of Financial Studies, forthcoming
57 Pages Posted: 6 Mar 2018 Last revised: 15 Sep 2020
Date Written: September 15, 2020
We investigate the informational content of prices in financial asset markets. To do so we use a large number of market experiments where the amount of information held by traders is precisely observed. We derive a new method to estimate how much of this information is incorporated in 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.
Keywords: Asymmetric Information, Efficient Market Hypothesis, Experimental Asset Markets, Informational Efficiency, Meta Study, Private Information
JEL Classification: C92, D82, D84, G14
Suggested Citation: Suggested Citation