Experimental Asset Markets with Endogenous Choice of Costly Heterogeneous Information
43 Pages Posted: 5 May 2009 Last revised: 1 Jun 2009
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: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Basic Principles of Asset Pricing Theory: Evidence from Large-Scale Experimental Financial Markets
By Peter Bossaerts and Charles R. Plott
-
Prices and Portfolio Choices in Financial Markets: Theory, Econometrics, Experiments
By Peter Bossaerts, Charles R. Plott, ...
-
By Rajnish Mehra and Raaj Kumar Sah
-
The Effect of Induced Mood on Prices in Asset Markets - Experimental Evidence
By Yaron Lahav and Shireen Meer
-
Price Discovery in Financial Markets: The Case of the CAPM
By Peter Bossaerts, D. Kleiman, ...
-
The Impact of Asset Repurchases and Issues in an Experimental Market
By Ernan Haruvy, Charles N. Noussair, ...
-
Exploring the Nature of 'Trader Intuition'
By Antoine Jean Bruguier, Steven R. Quartz, ...
-
Bubbling with Excitement: An Experiment
By Terrance Odean, Shengle Lin, ...