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Trading Portfolios Electronically – An Experimental Approach

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  • Sayee Srinivasan

    (OptiMark, Inc.)

Abstract

This paper focuses on a simple axiom – investors prefer to hold diversified combinations of assets. Arguing that pooling vehicles like mutual funds offer approximate solutions, we propose a portfolio trading mechanism that allows individuals to trade diverse combinations of assets through a single order. Given the complexity of the market mechanism, we construct a prototype of this trading system and test it through a series of laboratory experiments with student subjects. We address the quality of the price discovery process, quality of allocations, and efficiency of the market mechanism. Results from a set of laboratory experiments indicate that the performance of such systems is sensitive to design aspects as well as relative experience of participants.

Suggested Citation

  • Sayee Srinivasan, 2002. "Trading Portfolios Electronically – An Experimental Approach," Netnomics, Springer, vol. 4(1), pages 39-71, March.
    • Handle: RePEc:kap:netnom:v:4:y:2002:i:1:d:10.1023_a:1014926929215
    DOI: 10.1023/A:1014926929215
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    References listed on IDEAS

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