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Information Use and Transference among Legally Separated Share Markets— An Experimental Approach

Author

Listed:
  • Li Qi

    () (Department of Economics, Agnes Scott College, 141 E. College Avenue, Decatur, GA 30030 USA)

  • Jack Ochs

    () (Department of Economics, University of Pittsburgh, 230 S. Bouquet Street, Pittsburgh, PA 15260 USA)

Abstract

Several countries have adopted legally separated share markets (LSSM), where local firms market separate claims to the same dividend flow to domestic and foreign investors who cannot arbitrage across LSSM. We designed a laboratory experiment to test whether the inside information in one LSSM is reflected in the prices of both markets. We find that insider information does transfer across markets. The extent of this transfer depends upon whether the location of insiders is publicly known, how close prices in the informed market get to the full information equilibrium, and how much the price variance is in this market. We also observe insiders’ behavior and performance under different market conditions. Efforts by insiders to manipulate the market increase when their location is unknown to the public. On average such efforts pay off to the whole group of insiders but not to the initiator of these manipulative transactions.

Suggested Citation

  • Li Qi & Jack Ochs, 2009. "Information Use and Transference among Legally Separated Share Markets— An Experimental Approach," Southern Economic Journal, Southern Economic Association, vol. 76(1), pages 99-129, July.
  • Handle: RePEc:sej:ancoec:v:76:1:y:2009:p:99-129
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    File URL: http://dx.doi.org/10.4284/sej.2009.76.1.99
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    Cited by:

    1. Suren Vardanyan, 2016. "Contagion in Experimental Financial Markets," CERGE-EI Working Papers wp580, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G - Financial Economics

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