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The impact of an insider and short-selling on bubble formation in experimental financial market

Author

Listed:
  • Chmura, Thorsten
  • Bai, Ye
  • Bauder, David

Abstract

This study extends the institutional design of the existing literature focusing solely on short selling by introducing an insider who is informed of the dividend distribution and experienced outsiders who gain information via trading experience. Our findings show that introducing short selling and an insider does reduce the bubble duration and size. At the same time, volatility is significantly reduced. Furthermore, the presence of the single insider reduces the large undervaluation and overall turnover in pure short selling treatment and generates small positive bubbles. Once the outsiders gain information via trading experience, there are small positive bubbles with reduced volatility.

Suggested Citation

  • Chmura, Thorsten & Bai, Ye & Bauder, David, 2019. "The impact of an insider and short-selling on bubble formation in experimental financial market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 60(C), pages 211-230.
    • Handle: RePEc:eee:intfin:v:60:y:2019:i:c:p:211-230
    DOI: 10.1016/j.intfin.2019.01.003
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    Citations

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    Cited by:

    1. Merl, Robert & Stöckl, Thomas & Palan, Stefan, 2023. "Insider trading regulation and shorting constraints. Evaluating the joint effects of two market interventions," Journal of Banking & Finance, Elsevier, vol. 154(C).
    2. Ge-zhi Wu & Da-ming You, 2021. "Margin trading, short selling and corporate green innovation," Papers 2107.11255, arXiv.org, revised Aug 2021.
    3. Liu, Hong & Chai, Shujuan, 2020. "Risk aversion, public disclosure, and partially informed outsiders," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    4. Merl, Robert, 2022. "Literature review of experimental asset markets with insiders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    5. Robert Merl, 2021. "Literature Review of Experimental Asset Markets with Insiders," Working Paper Series, Social and Economic Sciences 2021-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.

    More about this item

    Keywords

    Experimental economics; Asset market; Bubble; Short selling; Insider trading; Market efficiency;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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