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Reaction to Public Information in Markets: How much does Ambiguity Matter?

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  • Brice Corgnet
  • Praveen Kujal
  • David Porter

Abstract

In this article, we experimentally study trader reaction to ambiguity when dividend information is revealed sequentially. Our results indicate that the role of ambiguity aversion in explaining financial anomalies is limited. Specifically, price changes are consistent with news revelation regarding the dividend, independent of subject experience and the degree of ambiguity. In addition, there is no under or overprice reactions to news. Regardless of experience, market reaction to news moves in line with fundamentals. We find no significant differences in the control versus ambiguity treatments regarding prices, price volatility and trading volume for experienced subjects.
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Suggested Citation

  • Brice Corgnet & Praveen Kujal & David Porter, 2013. "Reaction to Public Information in Markets: How much does Ambiguity Matter?," Economic Journal, Royal Economic Society, vol. 123(569), pages 699-737, June.
    • Handle: RePEc:ecj:econjl:v:123:y:2013:i:569:p:699-737
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    References listed on IDEAS

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    1. Kip Smith & John Dickhaut & Kevin McCabe & José V. Pardo, 2002. "Neuronal Substrates for Choice Under Ambiguity, Risk, Gains, and Losses," Management Science, INFORMS, vol. 48(6), pages 711-718, June.
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    Cited by:

    1. Konstantinos Georgalos, 2019. "An experimental test of the predictive power of dynamic ambiguity models," Journal of Risk and Uncertainty, Springer, vol. 59(1), pages 51-83, August.
    2. Konstantinos Georgalos, 2016. "Dynamic decision making under ambiguity," Working Papers 112111041, Lancaster University Management School, Economics Department.
    3. Corgnet, Brice & Hernán-González, Roberto & Kujal, Praveen, 2020. "On booms that never bust: Ambiguity in experimental asset markets with bubbles," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    4. Praveen Kujal & Owen Powell, 2017. "Bubbles in Experimental Asset Markets," Working Papers 17-01, Chapman University, Economic Science Institute.
    5. John Griffin, 2015. "Risk Premia and Knightian Uncertainty in an Experimental Market Featuring a Long-Lived Asset," Fordham Economics Discussion Paper Series dp2015-01, Fordham University, Department of Economics.
    6. Jeleva, Meglena & Tallon, Jean-Marc, 2016. "Ambiguïté, comportements et marchés financiers," L'Actualité Economique, Société Canadienne de Science Economique, vol. 92(1-2), pages 351-383, Mars-Juin.
    7. John Griffin, 2015. "Risk Premia and Knightian Uncertainty in an Experimental Market Featuring a Long-Lived Asset," Fordham Economics Discussion Paper Series dp2015-01er:dp2015-01, Fordham University, Department of Economics.
    8. Füllbrunn, Sascha & Rau, Holger A. & Weitzel, Utz, 2014. "Does ambiguity aversion survive in experimental asset markets?," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 810-826.
    9. Othon M. Moreno & Yaroslav Rosokha, 2016. "Learning under compound risk vs. learning under ambiguity – an experiment," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 137-162, December.
    10. Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, July.
    11. Kathleen Ngangoué, M., 2021. "Learning under ambiguity: An experiment in gradual information processing," Journal of Economic Theory, Elsevier, vol. 195(C).
    12. Christoph Huber & Julia Rose, 2019. "Do individual attitudes towards imprecision survive in experimental asset markets?," Working Papers 2019-06, Faculty of Economics and Statistics, Universität Innsbruck.
    13. Bousselmi, Wael & Sentis, Patrick & Willinger, Marc, 2019. "How do markets react to (un)expected fundamental value shocks? An experimental analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 90-113.
    14. Kangogo, Moses & Volkov, Vladimir, 2022. "Detecting signed spillovers in global financial markets: A Markov-switching approach," International Review of Financial Analysis, Elsevier, vol. 82(C).
    15. Jaeyong An & P. R. Kumar & Le Xie, 2016. "Dynamic Modeling of Price Responsive Demand in Real-time Electricity Market: Empirical Analysis," Papers 1612.05021, arXiv.org.

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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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