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Information Acquisition in Ostensibly Efficient Markets
Author(s) -
Brown Alasdair
Publication year - 2015
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/ecca.12118
Subject(s) - arbitrage , grossman , neglect , economics , carry (investment) , financial economics , perfect information , microeconomics , finance , medicine , nursing , keynesian economics
I use UK betting exchange data on Wimbledon tennis matches to investigate the Grossman and Stiglitz (1980) paradox. Risk‐free arbitrage opportunities arise frequently during matches (as information arrives and asynchronously shifts prices), but seldom arise before matches (when there is little information to move prices). I find that on the few occasions that arbitrage opportunities do arise before matches, they last substantially longer than average. This suggests, in line with the paradox, that traders neglect to acquire information (carry out research or watch markets) if they believe that markets are already efficient. This neglect, in turn, makes markets inefficient.