Aggregation of Information, Insider Trading and Liquidity in Experimental Call Markets
Bamberg University Dept. of Finance Working Paper
28 Pages Posted: 27 Sep 2001
Date Written: April 2001
Abstract
This paper reports the results of 13 experimental asset markets with 161 subjects that explore the effects of liquidity and aggregation of information with and without insider trading. Compared to most financial market experiments, reality is met by introducing long-living assets and integrating all subjects in a multi-period decision-making process.
Our main findings are that insider trading does not improve informational efficiency on a statistically significant level but depresses market liquidity seriously.
On these conditions, it seems interesting that "the market" is widening the spreads in order to counteract insiders. Analyses of the individual data show that this fact is caused by a group of market participants behaving like market makers.
Keywords: Market Microstructure, Experimental Asset Markets, Insider Behavior, Market Efficiency, Call Markets, Behavioral Finance
JEL Classification: D44, G12, G14
Suggested Citation: Suggested Citation
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