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Information Ambiguity, Market Institutions, and Asset Prices: Experimental Evidence

Author

Listed:
  • Te Bao

    (School of Social Sciences, Nanyang Technological University, 639818 Singapore)

  • John Duffy

    (Department of Economics, University of California, Irvine, Irvine, California 92697; Institute of Social and Economic Research, Osaka University, Osaka 567-0047, Japan)

  • Jiahua Zhu

    (King’s Business School, King’s College London, London WC2B 4BG, United Kingdom; Essex Business School, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, United Kingdom)

Abstract

We explore how information ambiguity and traders’ attitudes toward such ambiguity affect expectations and asset prices under three different market institutions. Specifically, we test a theoretical prediction that information ambiguity will lead market prices to overreact to bad news and underreact to good news. We find that such an asymmetric reaction exists and is strongest in individual prediction markets. It occurs to a lesser extent in single price call markets. It is weakest of all in double auction markets, in which buyers’ asymmetric reaction to good/bad news is cancelled out by the opposite asymmetric reaction of sellers.

Suggested Citation

  • Te Bao & John Duffy & Jiahua Zhu, 2025. "Information Ambiguity, Market Institutions, and Asset Prices: Experimental Evidence," Management Science, INFORMS, vol. 71(4), pages 3232-3252, April.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:4:p:3232-3252
    DOI: 10.1287/mnsc.2022.01223
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