Munich Personal RePEc Archive

Overweighting of public information in financial markets: A lesson from the lab

Ruiz-Buforn, Alba and Camacho-Cuena, Eva and Morone, Andrea and Alfarano, Simone (2020): Overweighting of public information in financial markets: A lesson from the lab.

[img]
Preview
PDF
MPRA_paper_98472.pdf

Download (567kB) | Preview

Abstract

We experimentally study the information aggregation process in a laboratory financial market when a public signal is released. The public disclosure crowds out information demand and reduces price informativeness. The latter effect is primarily caused by the overweighting of public information into prices. We are the first in providing evidence that strategic pricing concerns trigger the overweighting effect and the consequent market overreaction to public disclosures. From an economic policy perspective, we give support that, when deciding their communication strategy, the regulator can mitigate the market overreaction by properly setting the level of information transparency.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.