Price efficiency and trading behavior in limit order markets with competing insiders
AbstractWe study price efficiency and trading behavior in laboratory limit order markets with asymmetrically informed traders. Markets differ in the number of insiders present and in the subset of traders who receive information about the number of insiders present. We observe that price efficiency (i) is the higher the higher the number of insiders in the market but (ii) is unaffected by changes in the subset of traders who know about the number of insiders present. (iii) Independent of the number ofinsiders, price efficiency increases gradually over time. (iv) The insiders' information is reflected in prices via limit (market) orders if the asset's value is inside (outside) the bid-ask spread. (v) In situations where limit and market orders yield positive profits, insiders clearly prefer market orders, indicating a strong desire for immediate transactions.
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Bibliographic InfoPaper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2013-11.
Date of creation: May 2013
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insider; competition; asset market; price efficiency; trading behavior; experimental economics;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-09 (All new papers)
- NEP-EXP-2013-06-09 (Experimental Economics)
- NEP-MST-2013-06-09 (Market Microstructure)
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