IDEAS home Printed from https://ideas.repec.org/a/bpj/bejtec/v11y2011i1n9.html
   My bibliography  Save this article

No-Trade in the Laboratory

Author

Listed:
  • Angrisani Marco

    () (RAND Corporation)

  • Guarino Antonio

    () (University College London)

  • Huck Steffen

    () (University College London)

  • Larson Nathan C

    () (University of Virginia)

Abstract

We construct laboratory financial markets in which subjects can trade an asset whose value is unknown. Subjects receive private clues about the asset value and then set bid and ask prices at which they are willing to buy or to sell from the other participants. In some of our markets (experimental treatments), there are gains from trade, while in others there are no gains: trade is zero sum. Celebrated no-trade theorems state that differences in private information alone cannot explain trade in the zero sum case. We study whether purely informational trade is eliminated in our experimental markets with no gains. The comparison of our results for gains and no-gains treatments shows that subjects fail to reach the no-trade outcome by pure introspection, but they approach it over time through market feedback and learning. Furthermore, the less noisy the clue-asset relationship is, the closer trade comes to being eliminated entirely.

Suggested Citation

  • Angrisani Marco & Guarino Antonio & Huck Steffen & Larson Nathan C, 2011. "No-Trade in the Laboratory," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-58, April.
  • Handle: RePEc:bpj:bejtec:v:11:y:2011:i:1:n:9
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/bejte.2011.11.issue-1/bejte.2011.11.1.1745/bejte.2011.11.1.1745.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
    2. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
    3. Jehiel, Philippe & Koessler, Frédéric, 2008. "Revisiting games of incomplete information with analogy-based expectations," Games and Economic Behavior, Elsevier, pages 533-557.
    4. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, pages 238-249.
    5. James Dow & Gary Gorton, 1994. "Noise Trading, Delegated Portfolio Management, and Economic Welfare," Center for Financial Institutions Working Papers 95-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
    6. Plott, Charles R & Sunder, Shyam, 1982. "Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 663-698, August.
    7. Duxbury, Darren, 1995. " Experimental Asset Markets within Finance," Journal of Economic Surveys, Wiley Blackwell, vol. 9(4), pages 331-371, December.
    8. Plott, Charles R & Sunder, Shyam, 1988. "Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets," Econometrica, Econometric Society, pages 1085-1118.
    9. Doron Sonsino, 1998. "Geanakoplos and Sebenius model with noise," International Journal of Game Theory, Springer;Game Theory Society, vol. 27(1), pages 111-130.
    10. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2008. "Bootstrap-Based Improvements for Inference with Clustered Errors," The Review of Economics and Statistics, MIT Press, pages 414-427.
    11. Mark Grinblatt, 2001. "What Makes Investors Trade?," Journal of Finance, American Finance Association, vol. 56(2), pages 589-616, April.
    12. Forsythe, Robert & Palfrey, Thomas R & Plott, Charles R, 1982. "Asset Valuation in an Experimental Market," Econometrica, Econometric Society, pages 537-567.
    13. Lawrence Blume & Tarek Coury & David Easley, 2006. "Information, trade and incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 379-394.
    14. Lei, V. & Noussair, C. & Plott, C.R., 1998. "Non-Speculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality Vs. Actual Irrationality," Purdue University Economics Working Papers 1120, Purdue University, Department of Economics.
    15. Kfir Eliaz & Ran Spiegler, 2007. "A Mechanism-Design Approach to Speculative Trade," Econometrica, Econometric Society, pages 875-884.
    16. Lei, Vivian & Noussair, Charles N & Plott, Charles R, 2001. "Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality," Econometrica, Econometric Society, vol. 69(4), pages 831-859, July.
    17. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, pages 1279-1298.
    18. Dow, James & Gorton, Gary, 1997. "Noise Trading, Delegated Portfolio Management, and Economic Welfare," Journal of Political Economy, University of Chicago Press, pages 1024-1050.
    19. Marco Cipriani & Antonio Guarino, 2005. "Herd Behavior in a Laboratory Financial Market," American Economic Review, American Economic Association, pages 1427-1443.
    20. Sonsino, Doron, 1995. ""Impossibility of speculation" theorems with noisy information," Games and Economic Behavior, Elsevier, vol. 8(2), pages 406-423.
    21. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-1347, November.
    22. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    23. Copeland, Thomas E & Friedman, Daniel, 1991. " Partial Revelation of Information in Experimental Asset Markets," Journal of Finance, American Finance Association, vol. 46(1), pages 265-295, March.
    24. Neeman, Zvika, 1996. "Common Beliefs and the Existence of Speculative Trade," Games and Economic Behavior, Elsevier, vol. 16(1), pages 77-96, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Morone, Andrea & Nuzzo, Simone, 2016. "Do Markets (Institutions) Drive Out Lemmings or Vice Versa?," MPRA Paper 74322, University Library of Munich, Germany.
    2. Morone, Andrea & Nuzzo, Simone, 2015. "Market Efficiency, Trading Institutions and Information Mirages: evidence from an experimental asset market," MPRA Paper 67448, University Library of Munich, Germany.
    3. Hoppe, Eva I. & Schmitz, Patrick W., 2015. "Do sellers offer menus of contracts to separate buyer types? An experimental test of adverse selection theory," Games and Economic Behavior, Elsevier, pages 17-33.
    4. Page, Lionel & Siemroth, Christoph, 2017. "An experimental analysis of information acquisition in prediction markets," Games and Economic Behavior, Elsevier, vol. 101(C), pages 354-378.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:11:y:2011:i:1:n:9. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.