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Efficient market hypothesis: an experimental study with uncertainty and asymmetric information

Author

Listed:
  • Mondher Bouattour

    (CERIIM & LGCO Université de Toulouse 3 Paul Sabatier)

  • Isabelle Martinez

    (TSM Research - UMR 5303 CNRS Université de Toulouse 1 Capitole Université de Toulouse 3 Paul Sabatier)

Abstract

The efficient market hypothesis has been the subject of a wide debate over the past decades. This paper investigates the market efficiency by using laboratory experiments. We ran three experimental treatments with two distinguishing dimensions: uncertainty and asymmetric information. Results show that both uncertainty and information asymmetry affect the level of market efficiency with information asymmetry having a pronounced impact. Market efficiency is reduced when the fundamental value of stocks is volatile. In addition, we find that participants under-react to information and that this under-reaction is not corrected during trading periods and prices remain stable. Classification-JEL:C92;D82;G12;G14

Suggested Citation

  • Mondher Bouattour & Isabelle Martinez, 2019. "Efficient market hypothesis: an experimental study with uncertainty and asymmetric information," Revue Finance Contrôle Stratégie, revues.org, vol. 22(4), pages 27-51, december.
    • Handle: RePEc:dij:revfcs:v:22:y:2019:i:4:p:27-51
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    Citations

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    Cited by:

    1. Merl, Robert, 2022. "Literature review of experimental asset markets with insiders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    2. Saliha Theiri & Abdessatar Ati, 2020. "Weak Form of Efficiency Hypotheses: Empirical Modeling With Box ¨CPierce, ADF and ARCH Tests," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 137-149, October.
    3. Samuel Tabot Enow, 2023. "Detecting the Herding Behaviour in the South African Stock Market and its Implications," International Journal of Economics and Financial Issues, Econjournals, vol. 13(2), pages 88-92, March.
    4. Daouda Lawa Tan Toe & Mamadou Toe & Tibi Didier Zoungrana, 2023. "Investigating the weak and semi-strong forms of Informational Efficiency on the West African Economic and Monetary Union’s Stock Exchange (BRVM) through returns predictability tests," SN Business & Economics, Springer, vol. 3(9), pages 1-27, September.
    5. Lee, Chien-Chiang & Park, Bokyung & Wang, Chih-Wei, 2023. "The effect of asymmetric information disappears: Evidence in share repurchases and market efficiency," Finance Research Letters, Elsevier, vol. 56(C).
    6. repec:grz:wpsses:2021-04 is not listed on IDEAS

    More about this item

    Keywords

    market efficiency; uncertainty; asymmetric information; underreaction; laboratory experiments;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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