<abstract xmlns="http://www.w3.org/1999/xhtml">AIMS: The paper investigates the effects of misinformation regarding dividend payouts on bubble formation, asset pricing and individual investment returns in experimental asset markets, when correct information about the expected dividends and their probabilities is also available.METHOD: In two experiments, totaling34 Smith-Suchanek-Williams type double-auction continuous experimental markets (238 subjects), participants were exposed to misinformation regarding dividend payouts in a previous game, with the correct dividend matrix also provided. The misinformation stated the dividends in the previous game to have been much lower or much higher than according to the expected value function. The misinformation was either homogenous for all participants or provided to only half of the investors in a market (heterogeneously).RESULTS:Homogenous misinformation stating that the last game’s dividend payouts were high, led to larger overpricing throughout the game, as compared to baseline (no misinformation) and homogenous misinformation stating that the last game’s dividends were low. In informationally heterogeneous markets, where half of the participants received “high dividends” misinformation and half remained non-misinformed, transaction prices were the lowest compared to the aforementioned treatments. It was also discovered that agents receiving the ‘high dividend’ misinformation had lower returns than non-misinformed participants in the same heterogeneous market.</abstract>

AIMS: The paper investigates the effects of misinformation regarding dividend payouts on bubble formation, asset pricing and individual investment returns in experimental asset markets, when correct information about the expected dividends and their probabilities is also available.METHOD: In two experiments, totaling34 Smith-Suchanek-Williams type double-auction continuous experimental markets (238 subjects), participants were exposed to misinformation regarding dividend payouts in a previous game, with the correct dividend matrix also provided. The misinformation stated the dividends in the previous game to have been much lower or much higher than according to the expected value function. The misinformation was either homogenous for all participants or provided to only half of the investors in a market (heterogeneously).RESULTS:Homogenous misinformation stating that the last game’s dividend payouts were high, led to larger overpricing throughout the game, as compared to baseline (no misinformation) and homogenous misinformation stating that the last game’s dividends were low. In informationally heterogeneous markets, where half of the participants received “high dividends” misinformation and half remained non-misinformed, transaction prices were the lowest compared to the aforementioned treatments. It was also discovered that agents receiving the ‘high dividend’ misinformation had lower returns than non-misinformed participants in the same heterogeneous market.

Misinformation About Dividend Payouts Influences Transaction Prices in Experimental Asset Markets

Institute of Applied Psychology, Faculty of Management and Social Communication

Institute of Psychology, Faculty of Philosophy

Financial Internet Quarterly

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

AIMS: The paper investigates the effects of misinformation regarding dividend payouts on bubble formation, asset pricing and individual investment returns in...

Misinformation About Dividend Payouts Influences Transaction Prices in Experimental Asset Markets

Published Online: Dec 31, 2019

Page range: 44 - 54

Received: Jul 17, 2018

Accepted: Nov 14, 2019

DOI: https://doi.org/10.2478/fiqf-2019-0027

Keywords
experimental markets, misinformation, insider trading, informational heterogeneity

© 2019 Mateusz Polak et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Misinformation About Dividend Payouts Influences Transaction Prices in Experimental Asset Markets

Published Online: Dec 31, 2019

Page range: 44 - 54

Received: Jul 17, 2018

Accepted: Nov 14, 2019

DOI: https://doi.org/10.2478/fiqf-2019-0027

Keywordsexperimental markets, misinformation, insider trading, informational heterogeneity

© 2019 Mateusz Polak et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
experimental markets, misinformation, insider trading, informational heterogeneity