Please use this identifier to cite or link to this item: http://hdl.handle.net/10125/64917

Trading Volume and Public Information in an Experimental Asset Market with Short-Horizon Traders

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Title:Trading Volume and Public Information in an Experimental Asset Market with Short-Horizon Traders
Authors:Mark DeSantis
Radhika Lunawat
Chandra Kanodia
Keywords:Higher-order Beliefs
Abnormal Trading Volume
Public Information
Short-horizon Traders
Single-period Security Market
Date Issued:31 Aug 2019
Abstract:We examine the joint impact of investors’ trading horizons and public information on trading volume. We hypothesize that public information leads to relative homogenization in the traders’ beliefs about the fundamental value of an asset and this reduces their disagreement regarding the fundamental value. Since the long-horizon traders’ trade is motivated by the fundamental value, such reduced disagreement leads to a reduction in trading volume. We further hypothesize that public information leads to polarization in the traders’ beliefs about other traders’ beliefs about the fundamental value and this polarization increases disagreement regarding other traders’ beliefs about the fundamental value. Since short-horizon traders’ trade is motivated by other traders’ beliefs about the fundamental value, such increased disagreement leads to an increase in trading volume. We test these hypotheses in an experimental asset market and find strong evidence in their support.
URI:http://hdl.handle.net/10125/64917
Appears in Collections: 20 Theory


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