Informational Price Cascades and Non-Aggregation of Asymmetric Information in Experimental Asset Markets

Figures & data

Table 1. Expected dividend conditional on #R − #B.

#R − #B	0	1	2	3	4	5	6	7	8
E [$d(a)$]	0.50	0.67	0.80	0.89	0.94	0.97	0.98	0.99	1.00
#R − #B	0	−1	−2	−3	−4	−5	−6	−7	−8
E [$d(a)$]	0.50	0.33	0.20	0.11	0.06	0.03	0.02	0.01	0.00

Expected values are rounded to the nearest one hundredth.

Table 2. Experimental design.

	1 Observer	4 Observers	8 Observers
Simultaneous	SimPvt 8 sessions	Sim4Sig 5 sessions	SimPub 4 sessions
Sequential	SeqPvt 8 sessions	Sq4Sig 4 sessions	SeqPub 8 sessions

Cells contain the short name for the treatment and the number of sessions conducted.

Figure 1. One observer (Pvt) sequential signal sessions; contract prices and fundamental value.

Figure 2. Once observer (Pvt) simultaneous signal sessions; contract prices and fundamental value.

Figure 3. Eight observers (Pub) sequential signal sessions; contract prices and fundamental value.

Figure 4. Eight observers (Pub) simultaneous signal observers sessions; contract prices and fundamental value.

Figure 5. Four observers (4Sig) sequential signal sessions; contract prices and fundamental value.

Figure 6. Four observers (4Sig) simultaneous signal sessions; contract prices and fundamental value.

Table 3. Correlations between price and fundamental values.

			Pvt		4SIG		PUB
			Seq.	Sim.	Seq.	Sim.	Seq.	Sim.
Periods 2–9	Overall	Pearson r	0.03	0.35	0.36	0.66	0.59	0.77
		Nobs.	1242	1326	919	437	938	521
	Market 1	Pearson r	0.02	0.63	0.10	0.62	0.32	0.77
		Nobs.	491	487	333	175	397	245
	Market 2	Pearson r	−0.10	0.07	0.62	0.75	0.71	−0.10
		Nobs.	400	451	320	144	286	147
	Market 3	Pearson r	0.04	0.25	0.52	0.36	0.9	0.23
		Nobs.	351	388	266	118	255	129
Period 9	Overall	Pearson r	−0.05	0.47	0.47	0.91	0.87	0.81
		Nobs.	145	140	102	45	135	65
	Market 1	Pearson r	−0.61	0.00	0.34	0.81	0.73	0.61
		Nobs.	48	54	36	26	46	34
	Market 2	Pearson r	0.41	0.51	0.64	0.99	0.96	0.53
		Nobs.	39	41	32	8	51	21
	Market 3	Pearson r	0.06	0.77	0.68	0.99	0.94	−0.02
		Nobs.	48	44	34	11	38	10
Mean Period	9 Prices	Pearson r	0.14	0.56	0.48	0.92	0.86	0.93
		Nobs.	23	23	12	13	23	10

Underlined indicates a failure to reject the correlation is zero against the alternative it is positive at the 5% level.

Table 4. Regression results of the ninth period trading price mean on fundamental value (robust standard errors) for each treatment.

		SeqPvt	SimPvt	Seq4Sig	Sim4Sig	SeqPub	SimPub
Intercept	Coefficient	0.53	0.36	0.24	0.13	0.12	0.18
	Std. Error	0.07	0.05	0.10	0.07	0.07	0.08
	(p-value)	(0.00)	(0.00)	(0.03)	(0.09)	(0.10)	(0.05)
Value	Coefficient	0.07	0.22	0.36	0.88	0.83	0.89
	Std. Error	0.12	0.07	0.21	0.12	0.11	0.12
R2	(p-value)	(0.53)	(0.01)	(0.11)	(0.00)	(0.00)	(0.00)
		0.02	0.32	0.23	0.84	0.73	0.87
$H_0:\alpha =0 \& \beta =1$	F -stat	34.74	60.78	4.86	2.02	1.49	3.10
	(p-value)	(0.00)	(0.00)	(0.03)	(0.18)	(0.25)	(0.10)
	D.o.f.	21	21	10	11	21	8

Table 5. Chow tests of homogeneity in treatment pairs: The number of observers and timing treatment effects.

Observer effects			Timing effects
Comparison	F -stat	p-value	Comparison	F -stat	p-value
SeqPvt vs Seq4Sig	3.61	0.03	SeqPvt vs Sim Pvt	3.79	0.03
SeqPvt vs SeqPub	11.21	0.00	Seq4Sig vs Sim4Sig	3.72	0.04
Seq4Sig vs SeqPub	3.06	0.06	SeqPub vs SimPub	2.07	0.14
SimPvt vs Sim4Sig	23.06	0.00
SimPvt vs SimPub	33.82	0.00
Sim4Sig vs SimPub	0.78	0.47

Table 6. Pvt treatment price level regressions (Equation 2(2) $$P_{\mathit{smt}}={\alpha }_s+{\beta }_0\Delta V_{\mathit{smt}}+{\beta }_1\Delta V_{sm,t-1}+{\beta }_2{P}_{sm,t-1}+{ϵ}_{\mathit{smt}}$$(2) ).

Independent variable	Mean price	Media price	Closing price	Stationary price
$\Delta V_{\mathit{smt}}$	−0.066	−0.054	−0.040
	0.075	0.061	0.054
$\Delta V_{sm,t-1}$	0.046	0.059	0.061
	0.072	0.058	0.051
$P_{sm,t-1}$	0.328	0.566	0.564
	0.084 ***	0.068 ***	0.065 ***
${\alpha }_1$	0.259	0.175	0.177	0.40
	0.041 ***	0.035 ***	0.033 ***
${\alpha }_2$	0.330	0.215	0.216	0.49
	0.056 ***	0.045 ***	0.042 ***
${\alpha }_3$	0.358	0.234	0.235	0.54
	0.051 ***	0.043 ***	0.040 ***
${\alpha }_4$	0.397	0.247	0.250	0.57
	0.058 ***	0.046 ***	0.044 ***
${\alpha }_5$	0.396	0.255	0.244	0.58
	0.064 ***	0.052 ***	0.049 ***
${\alpha }_6$	0.441	0.297	0.297	0.68
	0.066 ***	0.055 ***	0.051 ***
${\alpha }_7$	0.609	0.385	0.380	0.89
	0.085 ***	0.069 ***	0.065 ***
${\alpha }_8$	0.446	0.272	0.282	0.60
	0.073 ***	0.062 ***	0.059 ***
Observations	159	159	159
R2	0.61	0.73	0.77
Wald stat. all ${\alpha }_i$ equal	32.660	19.720	22.810
Probility$>{\mathrm{\chi }}^2$	<.0001	0.006	0.002

Table 7. Average final asset units holdings conditional upon signal.

Signal	Market 1	Market 2	Market 3	Total
Black	4.64	3.72	4	4.13
Stand. dev.	3.58	3.52	3.84	3.65
Red	5.39	6.06	6.37	5.92
Stand. dev.	3.88	4.27	4.46	4.17
Total	5.00	5.00	5.00	5.00
Stand. dev.	3.55	3.97	4.52	4.01

Figure 7. Empirical CDF of final asset holdings for Red and Black signal receivers, dashed line for Black.

Table 8. Sorting rules of trades into noise, informative, and non-informative classifications.

Price change	Signal	Informed trader role	Classification
–	–	None	Noise
Positive	Red	Buyer	Informative
Positive	Red	Seller	Non-informative
Positive	Black	Either	Non-informative
Negative	Black	Seller	Informative
Negative	Black	Buyer	Non-informative
Negative	Red	Either	Non-informative
None	Either	Either	Non-informative

Figure 8. Count of informative, noninformative, and noise contracts according to trade number in period.