We investigate how risk aversion (RA) shapes the informative content of prices in an experimental asset market, where traders are sorted according to their RA. RA should induce steeper individual demands and, under its most common parametrizations, drive equilibrium prices closer to revealing the state. Results support the prediction on individual demands, but not the prediction on prices, which do not vary with RA and are close to the risk-neutral benchmark. This pur- ported conflict is due to traders, particularly the more risk-averse ones, conveying into prices only part of their information.
Risk aversion and information aggregation in binary‐asset markets / A. Filippin, M. Mantovani. - In: QUANTITATIVE ECONOMICS. - ISSN 1759-7323. - 14:2(2023 May), pp. 753-798. [10.3982/QE1981]
Risk aversion and information aggregation in binary‐asset markets
A. FilippinPrimo
;
2023
Abstract
We investigate how risk aversion (RA) shapes the informative content of prices in an experimental asset market, where traders are sorted according to their RA. RA should induce steeper individual demands and, under its most common parametrizations, drive equilibrium prices closer to revealing the state. Results support the prediction on individual demands, but not the prediction on prices, which do not vary with RA and are close to the risk-neutral benchmark. This pur- ported conflict is due to traders, particularly the more risk-averse ones, conveying into prices only part of their information.File | Dimensione | Formato | |
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