TRADING CASE RE1
Market efficiency and dividend information
LEARNING OBJECTIVE
Experience how private information and trading prices contribute to an efficient market.
KEY CONCEPTS
Efficient Markets Hypothesis | Dividend valuation | Private information | Prediction markets
HOW THE CASE WORKS
Two stocks trade over two periods. Each pays a dividend after Period 1 and a liquidating dividend after Period 2. Product-market events are independent across firms but linked over time within each firm.
CASE DATA
| Firm | Event | Economic condition | Period 1 dividend |
|---|---|---|---|
| ABC | x | Poor; labor strike | 0 |
| ABC | y | Poor; no strike | 12 |
| ABC | z | Fair; good labor relations | 24 |
| CRA | w | Poor; labor strike | 0 |
| CRA | x/y | Poor or fair; no strike | 12 |
| CRA | z | Fair; good labor relations | 24 |
MARKET SETTING
The interest rate is 0%. You may borrow, lend, and sell shares short. A short position must pay any dividend due. Private messages such as 'Per 1: Not x' truthfully rule out one possible event.
TRADING RULES
- Click a stock name to view your private information.
- Use bids and asks to make a market or trade at displayed prices.
- After Period 1, dividends are paid and positions carry into Period 2.
- After Period 2, the liquidating dividend converts stock positions to cash.
AFTER TRADING CLOSES
The realized event or economic path determines the security payoffs. Cash, long positions, and short positions are settled according to the case rules.
PERFORMANCE: Trading bonus per trial = 0.0001 x closing market cash. Results and market rank accumulate across independent trials.