Do Insiders Contribute to Market Efficiency? Informational Efficiency and Liquidity of Experimental Call Markets with and without Insiders
AbstractThis paper reports the results of 13 experimental asset markets with 195 subjects that explore the effects of insider behavior on the price formation process and market liquidity. The experimental call markets use a more realistic design than related studies. We introduce infinitely-lived assets instead of periodical liquidation (so-called ?reset? markets) and provide full market transparency to the investors with an open orderbook. Our main findings are that insider trading does not improve informational efficiency at all but depresses market liquidity of the assets significantly. At a first glance, the observed spread widening as an impact of insider behavior leads to the conclusion that our call markets react ?as if? all subjects behave rationally like dealers in a market making environment. At a second glance, a first look into the individual data shows that only a smaller group of investors act as ?endogenous? market makers in the call market regime. --
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Bibliographic InfoPaper provided by University of Bamberg, Chair of Finance in its series Discussion Papers with number 11.
Date of creation: 2000
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Web page: http://www.uni-bamberg.de/en/bwl-finanz/
Market Microstructure; Experimental Asset Markets; Insider Behavior; Market Efficiency; Call Markets; Behavioral Finance;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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