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Learning from Unrealized versus Realized Prices

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Abstract

Our experiments investigate the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. In simultaneous markets with bids that are conditional on the price, traders neglect the information conveyed by the hypothetical value of the price. In sequential markets where the price is known prior to the bid submission, traders react to price to an extent that is roughly consistent with the benchmark theory. The difference's robustness to a number of variations provides insights about the drivers of this effect.

Citation

Ngangoué, M. Kathleen, and Georg Weizsäcker. 2021. "Learning from Unrealized versus Realized Prices." American Economic Journal: Microeconomics, 13 (2): 174-201. DOI: 10.1257/mic.20180268

Additional Materials

JEL Classification

  • D44 Auctions
  • D82 Asymmetric and Private Information; Mechanism Design
  • D84 Expectations; Speculations
  • G12 Equities; Fixed Income Securities
  • G14 Information and Market Efficiency; Event Studies; Insider Trading
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