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Informational asymmetries in laboratory asset markets with state-dependent fundamentals

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  • Keser, Claudia
  • Markstädter, Andreas
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    Abstract

    We investigate the formation of market prices in a new experimental setting involving multi-period call-auction asset markets with state-dependent fundamentals. We are particularly interested in two informational aspects: (1) the role of traders who are informed about the true state and/or (2) the impact of the provision of Bayesian updates of the assets´ state-dependent fundamental values (BFVs) to all traders. We find that bubbles are a rare phenomenon in all of our treatments. Markets with asymmetrically informed traders exhibit smaller price deviations from fundamentals than markets without informed traders. The provision of BFVs has little to no effect. Behavior of informed and uninformed traders differs in early periods but converges over time. On average, uninformed traders offer lower (higher) limit prices and hold less (more) assets than informed traders in good-state (bad-state) markets. Informed traders earn superior profits. --

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    Bibliographic Info

    Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 207.

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    Date of creation: 2014
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    Handle: RePEc:zbw:cegedp:207

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    Keywords: experimental economics; asset markets; informational asymmetries;

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