Does the Level of Information Matter for Traders? On the Usefulness of Information in Experimental Asset Markets

The literature on the relation between a trader’s information about the traded assets and the trader’s returns from trading has, so far, mainly concentrated on evaluating the value of insider information. Several papers have shown that insider information leads to returns far above the market average (see, e.g., Jeng et.al. [2], Lin and Howe [5], Lakonishok and Lee [4], Krahnen et.al. [3]). Much less effort has been invested into the question whether the level of information has also a significantly positive impact on the returns from trading when average informed traders are compared to traders with little or almost no information. There is some evidence that managers of small or large investment funds systematically underperform the market (see, e.g., Cowles [1], Malkiel [6][7]), which might be taken as evidence that rather well informed traders (without insider information, though) do not beat the market average. However, whether having no information might lead to better trading performance has not been addressed systematically, so far. In this study we will address the relation between a trader’s information level and his returns from trading in an experimental asset market where we can control carefully for a trader’s information level about the traded assets. Our results suggest that having more information need not lead to higher returns, except for the very best informed traders.