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Price manipulation in an experimental asset market

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Author Info
Veiga, Helena
Vorsatz, Marc

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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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Publisher 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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Related research
Keywords: Asset market Experiment Price manipulation Rational expectations;

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!]
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