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An Experimental Analysis of Dynamic Informed Trading

Author

Listed:
  • Junqian Li

    (School of Economics, Shandong University)

  • Yuqing Liu

    (School of Economics, University of Queensland, Brisbane, Australia)

  • Nhan Buu Phan

    (School of Economics, University of Queensland, Brisbane, Australia)

  • Shino Takayama

    (School of Economics, University of Queensland, Brisbane, Australia)

Abstract

In this paper, we study the trading strategies of informed traders in a simulated asset market. There is a risky asset with two possible values, and participants receive private information about the value of the asset. Market maker’s quotes are computationally simulated. We study whether the trading behavior of informed traders—specifically, the frequency of manipulative trading versus honest trading—is influenced by various conditions, including the bid–ask spread, retrading possibilities, and the risk attitude of traders. Our findings suggest that manipulation occurs in both long (e.g., 15 periods) and short (e.g., five periods) trading rounds. Furthermore, there is a significant increase in the number of manipulators when the bid–ask spread is narrow rather than wide. Our results also indicate that risk-seeking participants engage in manipulation more frequently than other participants.

Suggested Citation

  • Junqian Li & Yuqing Liu & Nhan Buu Phan & Shino Takayama, 2023. "An Experimental Analysis of Dynamic Informed Trading," Discussion Papers Series 665, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:665
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    File URL: https://economics.uq.edu.au/files/48158/665.pdf
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    References listed on IDEAS

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