Aggregation of Information, Insider Trading and Liquidity in Experimental Call Markets

Bamberg University Dept. of Finance Working Paper

28 Pages Posted: 27 Sep 2001

See all articles by Klaus R. Heilmann

Klaus R. Heilmann

University of Bamberg - Department of Finance

Volker Laeger

Independent

Andreas Oehler

Bamberg University

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

Heilmann, Klaus R. and Laeger, Volker and Oehler, Andreas, Aggregation of Information, Insider Trading and Liquidity in Experimental Call Markets (April 2001). Bamberg University Dept. of Finance Working Paper, Available at SSRN: https://ssrn.com/abstract=284951 or http://dx.doi.org/10.2139/ssrn.284951

Klaus R. Heilmann (Contact Author)

University of Bamberg - Department of Finance ( email )

Kirschaeckerstr. 39
Bamberg 96045
Germany
(+49) 951-863-2536 (Phone)
(+49) 951-863-2538 (Fax)

Volker Laeger

Independent ( email )

Andreas Oehler

Bamberg University ( email )

Kaerntenstrasse 7
Bamberg 96045
Germany
+49 951-863-2536 (Phone)
+49 951-863-2538 (Fax)

HOME PAGE: http://www.uni-bamberg.de/bwl-finanz/

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