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Gradual Information Diffusion and Asset Price Momentum

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  • Shengle Lin

    (Economic Science Institute, Chapman University)

Abstract

Gradual information diffusion model predicts that as private information travels across the population, pricing accuracy would improve and asset prices would exhibit momentum as a result. In laboratory markets I investigate the market’s aggregation capacity in response to varying proportions of informed traders as a consequence of information diffusion. The results demonstrate that pricing errors are high when private information is dispersed and that, as the information spreads, the market gradually revise the errors and manifest momentum. Analysis suggests that aggregation under dispersed information conditions is hampered by three factors: equilibrium multiplicity, slow arrival of myopic traders, and anonymous trading.

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  • Shengle Lin, 2010. "Gradual Information Diffusion and Asset Price Momentum," Working Papers 10-04, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:10-04
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    File URL: http://www.chapman.edu/ESI/wp/InformationDiffusionAssetPriceMomentum.pdf
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    Cited by:

    1. Irene Cherono & Tobias Olweny & Tabitha Nasieku, 2019. "Investor Behavior Biases and Stock Market Reaction in Kenya," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(1), pages 1-6.
    2. Mohammed Anam Akhtar & Khurram Ajaz Khan & Hung Cuong Hoang, 2023. "Role of Social Networking Sites in Financial Product Choice: An Investigation Through the Theory of Planned Behavior," Business Perspectives and Research, , vol. 11(1), pages 44-62, January.

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