Information Ambiguity, Market Institutions, and Asset Prices: Experimental Evidence

TY - JOUR

T1 - Information Ambiguity, Market Institutions, and Asset Prices: Experimental Evidence

AU - Bao, Te

AU - Duffy, John

AU - Zhu, Jiahua

N1 - Publisher Copyright: © 2024 INFORMS.

PY - 2025/4/14

Y1 - 2025/4/14

N2 - We explore how information ambiguity and traders’ attitudes toward such ambiguity affect expectations and asset prices under three different market institutions. Specifically, we test a theoretical prediction that information ambiguity will lead market prices to overreact to bad news and underreact to good news. We find that such an asymmetric reaction exists and is strongest in individual prediction markets. It occurs to a lesser extent in single price call markets. It is weakest of all in double auction markets, in which buyers’ asymmetric reaction to good/bad news is cancelled out by the opposite asymmetric reaction of sellers.

AB - We explore how information ambiguity and traders’ attitudes toward such ambiguity affect expectations and asset prices under three different market institutions. Specifically, we test a theoretical prediction that information ambiguity will lead market prices to overreact to bad news and underreact to good news. We find that such an asymmetric reaction exists and is strongest in individual prediction markets. It occurs to a lesser extent in single price call markets. It is weakest of all in double auction markets, in which buyers’ asymmetric reaction to good/bad news is cancelled out by the opposite asymmetric reaction of sellers.

UR - http://www.scopus.com/inward/record.url?scp=105003044629&partnerID=8YFLogxK

U2 - 10.1287/mnsc.2022.01223

DO - 10.1287/mnsc.2022.01223

M3 - Article

SN - 0025-1909

VL - 71

SP - 3232

EP - 3252

JO - MANAGEMENT SCIENCE

JF - MANAGEMENT SCIENCE

IS - 4

ER -