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Do Insiders Contribute to Market Efficiency? Informational Efficiency and Liquidity of Experimental Call Markets with and without Insiders


  • Oehler, Andreas
  • Heilmann, Klaus
  • Läger, Volker


This paper reports the results of 13 experimental asset markets with 195 subjects that explore the effects of insider behavior on the price formation process and market liquidity. The experimental call markets use a more realistic design than related studies. We introduce infinitely-lived assets instead of periodical liquidation (so-called ?reset? markets) and provide full market transparency to the investors with an open orderbook. Our main findings are that insider trading does not improve informational efficiency at all but depresses market liquidity of the assets significantly. At a first glance, the observed spread widening as an impact of insider behavior leads to the conclusion that our call markets react ?as if? all subjects behave rationally like dealers in a market making environment. At a second glance, a first look into the individual data shows that only a smaller group of investors act as ?endogenous? market makers in the call market regime.

Suggested Citation

  • Oehler, Andreas & Heilmann, Klaus & Läger, Volker, 2000. "Do Insiders Contribute to Market Efficiency? Informational Efficiency and Liquidity of Experimental Call Markets with and without Insiders," Discussion Papers 11, University of Bamberg, Chair of Finance.
  • Handle: RePEc:zbw:bamfin:11

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    References listed on IDEAS

    1. Schnitzlein, Charles R, 1996. " Call and Continuous Trading Mechanisms under Asymmetric Information: An Experimental Investigation," Journal of Finance, American Finance Association, vol. 51(2), pages 613-636, June.
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    More about this item


    Market Microstructure; Experimental Asset Markets; Insider Behavior; Market Efficiency; Call Markets; Behavioral Finance;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


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