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The Speed of Information Revelation and Eventual Price Quality in Markets with Insiders: Comparing Two Theories

Bossaerts, Peter and Frydman, Cary and Ledyard, John (2014) The Speed of Information Revelation and Eventual Price Quality in Markets with Insiders: Comparing Two Theories. Review of Finance, 18 (1). pp. 1-22. ISSN 1572-3097. https://resolver.caltech.edu/CaltechAUTHORS:20140410-090653513

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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.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1093/rof/rfs049DOIArticle
http://rof.oxfordjournals.org/content/18/1/1PublisherArticle
ORCID:
AuthorORCID
Bossaerts, Peter0000-0003-2308-2603
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.
Funders:
Funding AgencyGrant Number
NSFDRU-0527491
NSFSES 0616431
Subject Keywords:
Issue or Number:1
Classification Code:JEL Classification: G12, G14, C92
Record Number:CaltechAUTHORS:20140410-090653513
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20140410-090653513
Official Citation:Bossaerts, P., Frydman, C., & Ledyard, J. (2014). The Speed of Information Revelation and Eventual Price Quality in Markets with Insiders: Comparing Two Theories. Review of Finance, 18(1), 1-22. doi: 10.1093/rof/rfs049
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:44843
Collection:CaltechAUTHORS
Deposited By: Jason Perez
Deposited On:10 Apr 2014 18:14
Last Modified:03 Oct 2019 06:23

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