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Is more information always better? Experimental financial markets with asymmetric information

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  • Jürgen Huber
  • Matthias Sutter
  • Michael Kirchler

Abstract

We study the value of information in financial markets by asking whether having more information always leads to higher returns. We address this question in an experiment where single traders have different information levels about an asset's intrinsic value. In our treatments we vary the nature of the information and the trading mechanism. We find that only the very best informed traders (i.e. insiders) significantly outperform less informed traders. However, there is a wide range of information levels (from zero information to an average information level) where additional information does not yield higher returns. The latter result implies that the value of information is not strictly monotonic.

Suggested Citation

  • Jürgen Huber & Matthias Sutter & Michael Kirchler, 2004. "Is more information always better? Experimental financial markets with asymmetric information," Papers on Strategic Interaction 2005-13, Max Planck Institute of Economics, Strategic Interaction Group.
    • Handle: RePEc:esi:discus:2005-13
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    Cited by:

    1. Wang, Zongrun & Chen, Songsheng, 2019. "Market efficiency, strategies and incomes of heterogeneously informed investors in a social network environment," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 15-32.

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    More about this item

    Keywords

    Asymmetric information; Experimental economics; Value of information;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G1 - Financial Economics - - General Financial Markets

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