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Information Acquisition in Ostensibly Efficient Markets

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  • Alasdair Brown

    (University of East Anglia)

Abstract

I use U.K. betting exchange data on Wimbledon tennis matches to investigate the Grossman and Stiglitz (1980) paradox. Risk-free arbitrage opportunities arise frequently during matches (as information arrives and asynchronously shifts prices), but seldom arise before matches (when there is little information to move prices). I find that on the few occasions that arbitrage opportunities do arise before matches, they last substantially longer than average. This suggests, in line with the paradox, that traders neglect to acquire information (i.e. carry out research, or watch markets) if they believe that markets are already efficient. This neglect, in turn, makes markets inefficient.

Suggested Citation

  • Alasdair Brown, 2013. "Information Acquisition in Ostensibly Efficient Markets," University of East Anglia Applied and Financial Economics Working Paper Series 043, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:aepppr:2012_43
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    File URL: https://ueaeco.github.io/working-papers/papers/afe/UEA-AFE-043.pdf
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    References listed on IDEAS

    as
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