Public Information and Capital Flows: Evidence from a Betting Market

37 Pages Posted: 8 Jul 2021

See all articles by Karthik Balakrishnan

Karthik Balakrishnan

Rice University - Jesse H. Jones Graduate School of Business

Darren Bernard

University of Washington - Department of Accounting

Date Written: June 11, 2021

Abstract

Using a shock to transparency in a parimutuel betting market, we show that capital flows increase in public information even in markets with largely risk-seeking participants. The evidence indicates that capital allocation decisions are partly a function of behavioral mechanisms such as the illusion of control. More broadly, our results suggest transparency can facilitate gambling behavior, a result with implications for the many settings in which decision-makers are not globally risk averse but rather exhibit local risk-seeking behavior. Our findings also inform policy debate on whether and how to use transparency to address speculative flows in financial markets.

Keywords: transparency, public information, capital flows, gambling, illusion of control, market efficiency

JEL Classification: D80, G02, G14, M41, Z23

Suggested Citation

Balakrishnan, Karthik and Bernard, Darren, Public Information and Capital Flows: Evidence from a Betting Market (June 11, 2021). Available at SSRN: https://ssrn.com/abstract=3874155 or http://dx.doi.org/10.2139/ssrn.3874155

Karthik Balakrishnan (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Darren Bernard

University of Washington - Department of Accounting ( email )

PACCAR Hall
4273 E Stevens Way NE
Seattle, WA 98195-3200
United States

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