Informational price cascades and non-aggregation of asymmetric information in experimental asset markets

Shachat, Jason; Srinivasan, Anand

doi:10.1080/15427560.2022.2081970

Informational price cascades and non-aggregation of asymmetric information in experimental asset markets

Shachat, Jason; Srinivasan, Anand

Authors

Professor Jason Shachat jason.shachat@durham.ac.uk
Professor

Anand Srinivasan

Abstract

We report on experimental markets which generate an abject failure of the aggregation of asymmetric information. While realized prices have zero correlation with fundamental values, surprisingly, these are not highly volatile. The non-aggregation of information manifests as prices which lock in to home grown norms that we call informational price cascades. Our results are in stark contrast to previous experiments testing fully revealing rational expectations equilibrium under asymmetric information and others examining social learning in asset markets when there is a rational market maker. Our experiments incorporate the asset and information structures from the latter into the decentralized private information setting and double auction trading mechanism of the former. Information only starts to aggregate when either each private signal is revealed to half of the traders or all private signals are simultaneously released early in the asset's issue.

Citation

Shachat, J., & Srinivasan, A. (2022). Informational price cascades and non-aggregation of asymmetric information in experimental asset markets. Journal of Behavioral Finance, 23(4), 388-407. https://doi.org/10.1080/15427560.2022.2081970

Journal Article Type	Article
Acceptance Date	Mar 3, 2022
Online Publication Date	Jun 15, 2022
Publication Date	2022
Deposit Date	Mar 15, 2022
Publicly Available Date	Mar 7, 2023
Journal	Journal of Behavioral Finance
Print ISSN	1542-7560
Electronic ISSN	1542-7579
Publisher	Taylor and Francis Group
Peer Reviewed	Peer Reviewed
Volume	23
Issue	4
Pages	388-407
DOI	https://doi.org/10.1080/15427560.2022.2081970
Public URL	https://durham-repository.worktribe.com/output/1212018

Files

Published Journal Article (4 Mb)
PDF

Publisher Licence URL
http://creativecommons.org/licenses/by/4.0/

Copyright Statement
© 2022 The Author(s). Published with license by Taylor and Francis Group, LLC
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.