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Risk Attitude, Beliefs Updating and the Information Content of Trades: An Experiment

Bisière, Christophe, Décamps, Jean-Paul and Lovo, Stefano (2009) Risk Attitude, Beliefs Updating and the Information Content of Trades: An Experiment. TSE Working Paper, n. 09-036

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We conduct a series of experiments that simulate trading in financial markets and which allows us to identify the different effects that subjects’ risk attitudes and belief updating rules have on the information content of the order flow. We find that there are very few risk-neutral subjects and that subjects displaying risk aversion or risk-loving tend to ignore private information when their
prior beliefs on the asset fundamentals are strong. Consequently, private information struggles penetrating trading prices. We find evidence of non-Bayesian belief updating (confirmation bias and under-confidence). This reduces (improves) market efficiency when subjects’ prior beliefs are weak (strong).

Item Type: Monograph (Working Paper)
Language: English
Date: May 2009
Additional Information: révisé en mai 2012
JEL Classification: D82 - Asymmetric and Private Information
G14 - Information and Market Efficiency; Event Studies
Divisions: TSM Research (Toulouse), TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 19 Dec 2011 05:45
Last Modified: 30 Jan 2020 18:41
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