When Do Security Markets Aggregate Dispersed Information?

87 Pages Posted: 4 Jun 2019 Last revised: 12 Jun 2020

See all articles by Brice Corgnet

Brice Corgnet

University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE)

Cary A. Deck

University of Alabama - Department of Economics, Finance and Legal Studies

Mark DeSantis

Chapman University - The George L. Argyros School of Business & Economics

Kyle W. Hampton

University of Hawaii

Erik O. Kimbrough

Chapman University - The George L. Argyros School of Business & Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 9, 2020

Abstract

In a seminal work, Plott and Sunder (1988) offer support for the rational expectations hypothesis and report evidence that markets with certain features aggregate dispersed information. However, their results are based on only a few observations and our attempt to replicate the key findings of that study with an appropriately powered experiment largely fails. The resulting post study probability that market performance is better described by rational expectations than the prior information (Walrasian) model under the conditions specified by Plott and Sunder (1988) is very low. As a result of our failure to replicate, we investigate an alternate set of market features that combines aspects of the original experimental design. For these markets we do find robust evidence of information aggregation in support of the rational expectations model. In total, our results indicate that information aggregation in asset markets is fragile and should only be expected in limited circumstances.

Keywords: Aggregation, Efficient Markets, Rational Expectations, Experiments, Replication

Suggested Citation

Corgnet, Brice and Deck, Cary A. and DeSantis, Mark and Hampton, Kyle W. and Kimbrough, Erik O., When Do Security Markets Aggregate Dispersed Information? (June 9, 2020). Available at SSRN: https://ssrn.com/abstract=3387603 or http://dx.doi.org/10.2139/ssrn.3387603

Brice Corgnet

University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE) ( email )

Lyon
France

Cary A. Deck

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Mark DeSantis

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States

Kyle W. Hampton

University of Hawaii

Honolulu, HI 96822
United States

Erik O. Kimbrough (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

One University Dr
Orange, CA 92866
United States

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