Published January 2014
| public
Journal Article
The Speed of Information Revelation and Eventual Price Quality in Markets with Insiders: Comparing Two Theories
- Creators
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Bossaerts, Peter
- Frydman, Cary
- Ledyard, John
Abstract
Two theoretical literatures, one using Bayesian Nash equilibrium (BNE), and the other using noisy rational expectations equilibrium (NREE), both provide a foundation for understanding how private information is impounded into asset prices, yet some of their predictions are conflicting. Here, we compare for the first time, the two theories using data from carefully controlled laboratory asset markets. In the dynamics, we find strong evidence for BNE theory, although final prices support predictions of the NREE theory. Finally, we document that price volatility increases when information is being impounded in prices.
Additional Information
© 2013 The Authors. Published by Oxford University Press [on behalf of the European Finance Association]. Comments from Craig Holden and Avanidhar Subrahmanyam on an earlier draft, as well as discussions with Charles Plott and Sera Linardi are gratefully acknowledged. The usual disclaimer applies. Research supported by NSF grants DRU-0527491 and SES 0616431.Additional details
- Eprint ID
- 44843
- DOI
- 10.1093/rof/rfs049
- Resolver ID
- CaltechAUTHORS:20140410-090653513
- NSF
- DRU-0527491
- NSF
- SES 0616431
- Created
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2014-04-10Created from EPrint's datestamp field
- Updated
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2021-11-10Created from EPrint's last_modified field