The Effect of Reliability, Content and Timing of Public Announcements on Asset Trading Behavior Articles uri icon

authors

  • CORGNET, BRICE DENYS
  • KUJAL, PRAVEEN
  • PORTER ., DAVID P.

publication date

  • November 2010

start page

  • 254

end page

  • 266

issue

  • 2

volume

  • 76

International Standard Serial Number (ISSN)

  • 0167-2681

Electronic International Standard Serial Number (EISSN)

  • 1879-1751

abstract

  • Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects
    receive qualitative announcements in predetermined trading periods that
    are either preset by the experimenter, randomly selected, or determined
    by past asset market prices. We find that messages can play a
    significant role in bubble abatement, or rekindling. The preset message,
    "The price is too high," decreases the amplitude and duration of
    bubbles for inexperienced subjects. Announcements that depend on the
    actual level of mispricing reduce bubble magnitude. Meanwhile, a preset
    or random message, "The price is too low," prevents experienced subjects
    from abating bubbles. We account for the effect of public messages by
    showing that they significantly reduce inconsistent ("irrational")
    trading behavior.