The Role of Public Information on the Efficiency of Financial Markets

Abstract

The current economic situation has sparked a debate about the role of the rating agencies in market performance. A crucial issue in the operation of this financial system is the way in which private and public information is generated, distributed and used and how it is incorporated into asset prices. In this study we use laboratory experiment to investigate the role of public information on the efficiency of financial markets. The main focus of the paper is to analyse if the presence of imperfect and exogenous private and public information improve o reduces market efficiency. We conclude that the introduction of a public signal with high quality than private signals, and the release of more public information improve price efficiency. Presence of public signals ensures an efficient transmission of information so market converges to the efficient equilibrium. It is observe that public information coordinates trading activity.