How Much Information is Incorporated in Financial Asset Prices? Experimental Evidence

48 Pages Posted: 6 Mar 2018 Last revised: 12 Nov 2019

See all articles by Lionel Page

Lionel Page

Queensland University of Technology

Christoph Siemroth

University of Essex - Department of Economics

Date Written: November 10, 2019

Abstract

We derive a new method to estimate how much information is incorporated in financial market prices. In our meta study with data from existing and new double auction experiments, we directly estimate the informational content of prices for the first time. 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. We compare our estimates with beliefs of economists surveyed at the Econometric Society Meetings, and find that economists and finance researchers alike expect market prices to reflect considerably more private information than what we estimated. These results suggest that academics may overestimate the ability of financial markets to incorporate private information.

Keywords: Asymmetric Information, Efficient Market Hypothesis, Experimental Asset Markets, Informational Efficiency, Meta Study, Private Information

JEL Classification: C92, D82, D84, G14

Suggested Citation

Page, Lionel and Siemroth, Christoph, How Much Information is Incorporated in Financial Asset Prices? Experimental Evidence (November 10, 2019). Available at SSRN: https://ssrn.com/abstract=3130307 or http://dx.doi.org/10.2139/ssrn.3130307

Lionel Page

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Christoph Siemroth (Contact Author)

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

HOME PAGE: http://sites.google.com/site/csiemroth/

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