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Only Paul Could Go To Changchun

How much information is incorporated in financial asset prices? Experimental Evidence

3/12/2018

 
Here.

We propose a new estimation method and use experimental data from multiple double auction experiments in the literature to directly estimate how much information is incorporated in financial market prices. 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.


From:

Lionel Page
Queensland University of Technology

Christoph Siemroth
University of Essex


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