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Abstract

We analyze in the laboratory whether an uninformed trader is able to manipulate the price of a financial asset by comparing the results of two experimental treatments. In the benchmark treatment, 12 subjects trade a common value asset that takes either a high or a low value. Only three subjects know the actual value of the asset while the market is open for trading. The manipulation treatment is identical to the benchmark treatment apart from the fact that we introduce a computer program as an additional uninformed trader. This robot buys a fixed number of shares in the beginning of a trading period and sells them again afterwards. Our main result shows that the last contract price is significantly higher in the manipulation treatment if the asset takes a low value and that private information is very well disseminated by both markets if the value of the asset is high. Finally, even though this simple manipulation program loses money on average, it is profitable in some instances.

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File URL: http://www.sciencedirect.com/science/article/B6V64-4SPC0SP-2/2/2e8ecd5a823eca9f4202af93a18afa6d
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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 53 (2009)
Issue (Month): 3 (April)
Pages: 327-342

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Handle: RePEc:eee:eecrev:v:53:y:2009:i:3:p:327-342

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Asset market Experiment Price manipulation Rational expectations;

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References

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Cited by:

1. Powell, O.R., 2010. "Essays on Experimental Bubble Markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4219264, Tilburg University.
2. Veiga, Helena & Vorsatz, Marc, . "The effect of short-selling of the aggregation of information in an experimental asset market," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/2745, Universidad Carlos III de Madrid.
   
   • Helena Veiga & Marc Vorsatz, 2008. "The effect of short-selling of the aggregation of information in an experimental asset market," Statistics and Econometrics Working Papers ws083808, Universidad Carlos III, Departamento de Estadística y Econometría.
   • Marc Vorsatz & Helena Veiga, 2008. "The Effect of Short–Selling on the Aggregation of Information in an Experimental Asset Market," Working Papers 2008-26, FEDEA.
3. Veiga, Helena & Vorsatz, Marc, . "Aggregation and dissemination of information in experimental asset markets in the presence of a manipulator," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/2937, Universidad Carlos III de Madrid.
   
   • Helena Veiga & Marc Vorsatz, 2008. "Aggregation and dissemination of information in experimental asset markets in the presence of a manipulator," Statistics and Econometrics Working Papers ws084110, Universidad Carlos III, Departamento de Estadística y Econometría.

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