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Asymmetric information, imitative behaviour and communication: price formation in an experimental asset market

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  • Olivier Brandouy
  • Pascal Barneto
  • Lawrence Leger

Abstract

The paper describes experimental results from a simulated stock market with manipulation of asymmetric information and communication, including conditions intended to promote imitative behaviour and rumour. Price discovery was inefficient when the presence of insiders was disguised, compared to a homogeneous expectations baseline. When the presence of insiders was revealed observed prices became efficient with respect to bad news but not with respect to good news, possibly suggesting loss-averse behaviour. With free communication there was a decrease in both efficiency and price volatility—insider information was masked by noise. Price formation under these conditions was similar to baseline, but with weak evidence of speculative pricing. It is conjectured that other factors than informational noise may be necessary determinants of herd behaviour, but further work is indicated.

Suggested Citation

  • Olivier Brandouy & Pascal Barneto & Lawrence Leger, 2003. "Asymmetric information, imitative behaviour and communication: price formation in an experimental asset market," The European Journal of Finance, Taylor & Francis Journals, vol. 9(5), pages 393-419.
    • Handle: RePEc:taf:eurjfi:v:9:y:2003:i:5:p:393-419
    DOI: 10.1080/1351847032000087786
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    Cited by:

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    4. Puput Tri Komalasari & Marwan Asri & Bernardinus M. Purwanto & Bowo Setiyono, 2022. "Herding behaviour in the capital market: What do we know and what is next?," Management Review Quarterly, Springer, vol. 72(3), pages 745-787, September.
    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.
    6. Merl, Robert, 2022. "Literature review of experimental asset markets with insiders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    7. Lorenzo Zanello RIva, 2012. "El efecto día en cinco índices bursátiles de América Latina," Documentos Departamento de Economía 18081, Universidad del Norte.

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