Christoph Siemroth, University of Essex (Job Market Seminar)
"How much information is incorporated in financial asset prices? Experimental Evience"
We derive a new method to estimate how much information is incorporated in financial market prices. In our meta study with data from existing and new double auction experiments, we directly estimate the informational content of prices for the first time. We find that public information is almost completely reflected in prices, but that surprisingly little private information---less than 50%---is incorporated in prices. Our estimates therefore suggest that while semi-strong informational efficiency is consistent with the data, financial market prices may be very far from strong-form efficiency. We compare our estimates with beliefs of economists surveyed at the Econometric Society Meetings, and find that economists and finance researchers alike expect market prices to reflect considerably more private information than what we estimated. These results suggest that academics may overestimate the ability of financial markets to incorporate private information.
Contact person: Peter Norman Sørensen