Reacting to ambiguous signals in an experimental asset market

• Main Authors: Nur Afifah Nasharudin, Sun, Kangqing, Tan, Mei Qi
• Other Authors: Bao Te
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2021
• Subjects: Social sciences::Economic theory::Macroeconomics
• Online Access: https://hdl.handle.net/10356/147927
• Institution: Nanyang Technological University

Central banks often make public announcements regarding their long-term monetary policy in order to reduce uncertainty in the markets and to stimulate economic activities. Such intention suggests that reducing uncertainty has important implications for economic and financial stability. Our paper aims to investigate the factors driving market participants’ behaviour under ambiguity that could potentially lead to financial market volatility. Understanding how market participants process ambiguous information and make their decisions could also guide descriptive modelling of decisions under uncertainty and has empirical implications. In an asset market experimental setting, our results provide statistical evidence to information processing when subjected to ambiguous quality of private signals. In particular, Ambiguity-Averse participants tend to over-weight the private signal and ambiguous signals are a source of asset misvaluation.